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C. FX Risk – Calculating the Capital Charge

C 52/2017 STA Effective from 1/4/2021

Below is an example of calculating the capital charge for FX risk.

A bank has the following positions that have been converted at spot rates into its reporting currency, United Arab dirhams (AED).

CurrencyJPYEURGBPAUDUSDGold
Net position (AEDm)+50+100+150-20-180-35

 

The higher of the sum of the net long and net short currency positions is AED 300m.

The capital charge is therefore calculated as 8% of AED 300m, plus the net position in gold (AED 35m):

Capital charge = 8% of AED 335m = AED 26.8m

Another example;

A bank has the following positions that have been converted at spot rates into its reporting currency (AED)

CurrencyEURJPYGBPAUDSGD
Net position (AEDm)+150-100+75-30-15

 

The sum of the net long positions is AED 225m and the sum of the net short positions is -AED 145m. The capital charge is calculated as 8% of the higher of these two positions, so the charge is 8% of AED 225m, or AED 18m.