Structural Balancing

The structural balance is the desire to maintain this? Structure of assets and liabilities, which will cover the losses from foreign exchange earnings derived from this same change in the balance of other items. In other words, this practice is an attempt to get the maximum possible number of "closed" position, thus minimizing the currency risk. But as the mother of "closed" all the positions are not always possible and reasonable, you should be prepared to take immediate actions of the structural balance. For example, if a bank expects that the place is likely to significant changes in exchange rates due to the devaluation of the currency, then he needs to immediately convert the spare cash in the currency of payment. And if we talk about the relationship between various foreign currencies in such a situation, apart from the conversion of the currency that is falling, - to secure. Can be accomplished, for example, replacement of securities denominated in "sick" currency, to secure the stock value. That is, structural balancing currency flows is to agree on the scope and terms of active and passive operations with all the foreign currencies to which the bank operates. One of the simplest and at the same time fairly common way of balancing is the alignment of the cash flows reflecting income and expenses. Each time, concluding an agreement providing for the receipt or, conversely, the payment of foreign currency, bank managers should try to opt for the currency, which would help to close (in whole or in part) the existing "open" foreign exchange positions. Another one of the techniques often used by banks to manage foreign exchange positions, is the conversion transactions. Excess amount of currency at a certain position may be reduced due to her in exchange for another currency in which the amount was below the standard position. This allows you to bring foreign currency position in accordance with the requirements of operations without the base currency. As a general rule, banks have resorted to currency conversions, the rate of which is reduced to a more secure and stable currency. If, for example, is expected to significantly increase the U.S. dollar relative to the pound, it makes sense for rapid sharing of available funds in pounds for dollars. Category: Management Operations Commercial Bank | Tags: balance