Exchange risk management of the bank

In the world and domestic practice, banks are among the main participants in the foreign exchange market, where their activity consists of management of assets and liabilities in foreign currency and, therefore, is related to currency risk (the element of market risk) arising in connection with the use of different Currency in carrying out banking operations. Under the currency risk for the bank to understand the probability of monetary loss or decrease in the cost of capital due to adverse changes in exchange rates during the period from acquisition to sale of products in foreign currency. The existence of a wide range of foreign exchange risk is also due to the list of factors that causes the risk. Distinguish long-and short-term factors of exchange rate fluctuation. Long-term factors of exchange rate risk include: general economic situation, political situation, interest rates, inflation, balance of payments, exchange control system, etc. Short-term - an imbalance of certain markets and the state of the market and competitive environment. These factors are external to the bank. The bank may have very little effect on the formation of these factors, so the bank's efforts should be focused on currency risk management within the bank itself. Element of currency risk for the bank concentrated in the ratio of assets and liabilities and off-balance sheet assets and liabilities in foreign currency. That is, the banking business professionals are managing foreign exchange risk management in foreign currency position. Category: Management Operations Commercial Bank