GUIDELINE ON FOREIGN CURRENCY RISK LIMITS

Transcription

1 1 (8) GUIDELINE ON FOREIGN CURRENCY RISK LIMITS Form FX1: FOREIGN CURRENCY DEALS OF A CREDIT INSTITUTION (does not include foreign branches) General This form applies only to credit institutions approved by the Bank of Finland as counterparties in foreign exchange interventions (including branches of EEA credit institutions). PART I Monthly spot deals in foreign currencies Use Part I to report the parent bank s daily spot deals in foreign currencies involving the euro, entering total deals of the reporting month and classifying deals by counterparty. Spot deals include all outright deals involving foreign currency transfers and payments to be executed no later than two business days after the date of the deal (trade date). Spot deals do not include the first leg of a swap, so the first leg should not be reported. Foreign currency deals performed by the credit institution with either its own foreign branch or the foreign branch of another Finnish bank are to be reported under Foreign banks. Foreign currency deals performed with other foreign customers should be reported under Foreign public. Please report foreign currency deals performed with non-bank domestic customers under Domestic public. Foreign-owned banks situated in Finland are treated as domestic banks. The Nordic Investment Bank (Pohjoismaiden Investointipankki) is treated as a foreign bank. Please report the reporting currency equivalent of purchases and sales of foreign currencies using the rate quoted by the Bank of Finland/ESCB for the report date.

2 2 (8) PART II Monthly short-term currency swaps Use Part II to report the parent bank s daily short-term currency swaps involving the euro, entering total deals of the reporting month. The value date of the first leg may occur no more than two business days after the trade date, the value date of the second leg no later than seven calendar days after the spot value. Only the second leg of the swaps should be included in the report. The first leg should not be reported at all. Euro deals against another currency in connection with swaps should be reported as purchases or sales of euro according to the type of conversion involved in the second leg of the swap. Short-term swaps should be reported according to the forward contract rate. PART III Monthly long-term currency swaps Use Part III to report the parent bank s daily long-term currency swaps involving the euro, entering total deals of the reporting month. The value date of the second (forward) leg may occur more than seven calendar days after the first (spot) leg, the value date of the first leg later than two business days after the trade date (forward/forward contracts). Only the second leg of the swaps should be included in the report. The first leg should not be reported at all. Euro deals against another currency in connection with swaps should be reported as purchases or sales of euro according to the type of conversion involved in the second leg of the swap. Long-term swaps should be reported according to the forward contract rate. PART IV Monthly outright forward exchange contracts Use Part IV to report the parent bank s daily outright forward exchange contracts involving the euro, entering total deals of the reporting month. Outright forward exchange contracts include all outright deals involving foreign currency transfers and payments that occur more than two business days after the trade date.

3 3 (8) Outright forward exchange contracts should be reported according to the forward contract rate. Reporting accuracy Reported markka or euro amounts should be rounded to the nearest thousand. As of 2002, the euro becomes the sole reporting currency and euro amounts should be rounded to the nearest thousand. Amounts should be converted to the reporting currency using the Bank of Finland/ESCB middle rate on the report day. If the Bank of Finland/ESCB does not quote a middle rate for the currency, it should be converted to the reporting currency according to the market rate of the report day. Frequency of reporting Complete form FX1 and submit it to the Financial Supervision Authority by the fifth business day of the calendar month following the reporting month.

4 4 (8) Form FX2: CURRENCY POSITIONS OF A CREDIT INSTITUTION General Credit institutions engaged in foreign currency operations and branches of EEA credit institutions approved as counterparties in foreign exchange interventions should complete and submit form FX2 as the positions are on the last business day of the reporting month. Foreign-currency position The foreign-currency position is reported with form FX2 according to the currencies specified on the form. Euro currencies (national currencies participating in the introduction of a single currency) are not reported. Currencies not specified should be reported either on line 498 or 499 depending on whether the position is long or short (foreign branches on lines 519 and 520 respectively). Euro currencies are not included in calculations of overall net foreign-currency positions. Currencies not specified on the form are divided into two groups depending on whether the open net position (form FX2, page 3, column 10) in an individual currency is long or short. Report net long currency positions (for spot, forward, future, structural and options) on the line long and, corresponding short currency positions on the line short. Currencies not specified on the form should be broken down into two groups and entered on the lines long and short in accordance with the example below. Assume an institution has the following foreign-currency positions: Net spot Net forward Net position position position CAD EEK AUD NZD Since the institution s net overall positions in CAD and AUD are long, they should be reported on the line long. Correspondingly, the EEK and NZD positions should be reported on the short line.

5 5 (8) Report the positions on form FX2 as follows: Net spot Net forward Net position position position Long Short Report the credit institution s foreign-currency position as at the end of the report day. Report positions excluding the figures for foreign branches on pages 2 and 3 of form FX2, the foreign-currency positions of foreign branches on pages 4 and 5. Report only the net position for individual currencies; that is, do not report claims and liabilities separately. Internal trades cannot be used to reduce positions. Derivatives based on either two euro currencies or a euro currency and ECUs will cease to be considered derivatives with the introduction of the euro. Any such contracts should be entered as claims or liabilities in the spot position. Spot position (column 1) The spot position includes all foreign-currency claims and liabilities, both items entered in the accounts and items not yet entered, as well as debt securities, equities, tangible assets and other balance-sheet items denominated in foreign-currency. Enter items in the spot position according to trade date. The spot position should also include equity holdings in foreign subsidiaries and associates, as well as foreign-currency loans raised to finance such equity. It also includes positions for which related payments will be effected within two business days or less. The spot position also includes outstanding principal amounts under various financing agreements (eg leasing, factoring, hire purchase, sales finance, accounts payable financing etc). Report leasing claims on the form as the imputed foreign-currency principal amount of outstanding leasing contracts. Also include unsettled payments of principal and interest which have fallen due, as well as accrued interest and any other returns on leasing contracts and other financial contracts which have not yet fallen due. The spot position also includes accrued income and expense included in accrued items as well as the daily balances on margin accounts pertaining to futures. Expected future foreign-currency income and expense should be included in the spot position if they have been hedged. Hedging should be taken into account in its entirety. The practice chosen must be applied consistently and cannot be changed temporarily.

6 6 (8) Include irrevocable guarantees and options (excluding currency options) in the spot position. Forward position (column 2) Report in the forward position all outstanding forward exchange contracts and swaps, both those involving two foreign currencies and those involving the euro and another currency. Extended forwards and swaps are treated as new contracts from the time the original contract is cancelled. Forward exchange contracts must be extended at the rate prevailing at the point of time in question. The interest accrued on the original contract between the trade date and the cancellation date should also be taken into account. Agio income and expense should be entered according to the due date of the original contract. If the extension of a forward contract entered into in the form of a swap is involved, the spot leg of the new contract should be reported in the spot position at the spot rate at the time of the deal. Futures position (column 3) Report in the futures position all outstanding futures, both those involving two foreign currencies and those involving the euro and another currency, including currency futures which do not carry the right to the surrender of foreign exchange. Daily balances on margin accounts pertaining to futures contracts should be included in the spot position. Structural position (column 5) Report the structural position in column 5 of page 2 if the institution has the prior approval of the Financial Supervision Authority to exclude the structural position from the calculation of the open net position in individual currencies. Items in the structural position should always be entered in the spot position.

7 7 (8) Currency options Options written (column 7) Options bought (column 8) Report the credit institution s currency options on page 3 of the form, excluding data on foreign branches. In columns 7 and 8 the options should be reported as absolute values, ie disregarding their signs. In all other columns, however, data should be given with the appropriate sign. The absolute values of the options contracts entered into by the credit institution s foreign branches should be reported in a similar fashion in columns 7 and 8 on page 5. The outstanding amount of currency options should be broken down by currency into call and put options sold (written) and call and put options bought. Both currency options between two foreign currencies and between the euro and another currency should be reported under options. Report outstanding currency options in columns 7 and 8. Outstanding currency call and put options bought and outstanding currency call and put options sold should be broken down by both contract and payment currency under the relevant currencies on the form. Currency options involving the euro and another currency should be reported both broken down by contract currency and on the line euro options, according to whether a purchase or sale of euro is concerned. Report euro options on the line euro options using the contract exchange rate; otherwise, use the rate on the report date. Currency options should also include exchange-traded options which do not carry the right to the surrender of foreign exchange. Delta-weighted currency options (column 9) Report the delta-weighted options position in column 9. The delta-weighted options position is calculated using the delta hedging model, and each option included in the position is expressed at its delta-weighted value. Both the currency sold and the currency bought should be included. The delta-weighted value should be added to the approriate spot and forward positions. The options reported on the line euro options in columns 7 (options written) and 8 (options bought) should be reported in column 9 under the currency that is as the countercurrency for the euro.

8 8 (8) Report exposures arising from options denominated in currencies that are not included in the currency breakdown on the lines long and short, depending on the sign of the net position in the currency in question. Net currency position in individual currencies including currency options (column 10) The net currency position in individual currencies is obtained by adding together (note the signs) the following: net spot, net forward, net futures and delta-weighted options minus the structural position, if the credit institution has the prior approval of the Financial Supervision Authority to eclude the structural position from its net currency position. Net long overall position (line 400) Add up all the net currency positions in column 10 which have the sign (+) and enter the total on line 400. Net short overall position (line 401) Add up all the net positions in column 10 which have the sign ( ) and enter the total on line 401. Net overall currency position (line 403) The net overall currency position is the higher of the absolute values on lines 400 and 401. Reporting accuracy Reported markka or euro amounts should be rounded to the nearest thousand. As of 2002, the euro becomes the sole reporting currency and euro amounts should be rounded to the nearest thousand. Amounts should be converted to the reporting currency using the Bank of Finland/ESCB middle rate on the report day. If the Bank of Finland/ESCB does not quote a middle rate for the currency, it should be converted to the reporting currency according to the market rate of the report day. Frequency of reporting FX2 reports shall be submitted to the Financial Supervision Authority by the fifth business day of the calendar month following the reporting month.