Foreign exchange positions and risks of czech banks

Josef Jílek and Jiřina Jílková

Prague Economic Papers, 1997, vol. 1997, issue 1

Abstract: Almost every bank has some degree of foreign exchange exposure. A bank, which holds net open positions in foreign currencies is exposed to the risk that exchange rates may move against it. Net open positions are due to foreign exchange trading positions or because of exposures caused by firm's overall assets and liabilities. Czech National Bank has imposed limits of FX risks and is thus limiting maximum potential loss of the Czech banking system. The paper describes the way how to calculate a bank's open FX positions and the current state of FX positions in selected Czech commercial hanks. The FX risk is a part of market risk. The Capital Adequacy Directive (CAD) and Basle Committee on Banking Supervision in its document Amendment to the Capital Accord to Incorporate Market Risks set out the minimum capital requirements for credit institutions and investment firms with respect to market risk.

Date: 1997
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DOI: 10.18267/j.pep.120

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