Currency position of banks

Banks perform operations on the purchase and sale of foreign currency both on behalf of customers and at their own expense and on their own behalf.

When the bank makes independent transactions for the sale of foreign currency, the ratio of claims and liabilities of the bank in foreign currency is violated.

The ratio of claims and liabilities of a bank in foreign currency determines (called) the currency position. In case of equality of claims and obligations, the currency position is considered closed. If the requirements are not equal to obligations, then the currency position is considered short.

Open the currency position can be long (requirements exceed liabilities) and short (obligations exceed the requirements).

For example, the bank has obligations to customers on attracted funds (residence balances) in US dollars and claims on placed funds in other banks (on correspondent accounts) in US dollars in the same amount. If the bank sells US dollars on its own behalf and at its own expense in the foreign exchange market and buys German marks, then its position in these currencies will become open. His obligations to customers in US dollars will exceed the bank’s currency, i.e. in US dollars, the currency position will be short. The amount of funds placed by the bank in German marks will be more than the bank’s liabilities in this currency, i.e. the currency position in German marks will be long.

The currency position is determined for each type of foreign currency and is estimated in national currency at the single exchange rate of the NB. Long AFP is recorded with the “+” sign, short with the “-” sign. The total currency position is calculated as the amount (taking into account the signs) for each type of foreign currency.

AFP means for a bank the occurrence of currency risk associated with changes in exchange rates, which can lead to additional income, as well as losses. In an effort to avoid currency risk, banks use various types of foreign exchange transactions to close their currency position. In addition, to reduce currency risk, a limit of AFP is set for both SLE and soft currencies.

The excess of the limit on long AFPs for SLE is repaid by selling UB at the rate, usually lower than the exchange rate. For each day of delay by the seller bank, penalties are applied (for example, lowering the sale rate for each day of delay).

The excess of the limit on short AFP for SLE, as well as the excess of the AFP limit in both short and long for “soft” currency, closes as a result of the purchase and sale of foreign currency, respectively, in the manner, established by the NB RB.