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Dubai Financial Services Authority (DFSA): Contents

Dubai Financial Services Authority (DFSA)
Laws
Rulebook Modules
Prudential — Investment, Insurance Intermediation and Banking Module (PIB) [VER33/02-19]
Sourcebook Modules
Consultation Papers
Policy Statements
DFSA Codes of Practice
Amendments to Legislation
Media Releases
Notices
Financial Markets Tribunal
Archive

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  • PIB A5.4 Foreign Exchange Risk Capital Requirement

    • PIB A5.4 Guidance

      PIB section A5.4 presents the method for the calculation of Foreign Exchange Risk Capital RequirementG for the purpose of PIB Rule 5.6.1(b).

      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB A5.4.1

      An Authorised FirmG which calculates its Foreign Exchange Risk Capital RequirementG in accordance with PIB Rule 5.6.1(b) must apply the RulesG in this section.

      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB A5.4.2

      An Authorised FirmG must calculate its Foreign Exchange Risk Capital RequirementG by using the standard method as follows:

      (a) calculating its net open position in each currency and in gold;
      (b) calculating its overall net open position in accordance with PIB Rule A5.4.4; and
      (c) multiplying the overall net open position by the percentage provided in PIB Rule A5.4.5.
      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Measuring the Net Open Position in a Single Currency

      • PIB A5.4.3

        An Authorised FirmG must calculate its net open position in each currency, and in gold, by summing:

        (a) the net spot position, being all asset items less all liability items, including accrued interest, denominated in the currency in question;
        (b) the net forward position, being all amounts to be received less all amounts to be paid under forward foreign exchange transactions, including currency futures and the principal on currency swaps not included in the spot position;
        (c) guarantees and similar instruments that are certain to be called and are likely to be irrecoverable;
        (d) net future income/expenses not yet accrued but already fully hedged, at the discretion of the Authorised FirmG ; and
        (e) any other item representing a profit or loss in Foreign CurrenciesG .
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Measuring the Overall Net Open Position

      • PIB A5.4.4

        (1) An Authorised FirmG must convert the net position in each Foreign CurrencyG and in gold at spot rates into the reporting currency.
        (2) The overall net open position is measured by aggregating:
        (a) the sum of the net short positions or the sum of the net long positions, whichever is the greater; plus
        (b) the net position (short or long) in gold, regardless of sign.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB A5.4.5

        The Foreign Exchange Risk Capital ChargeG is 8% of the overall net open position.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB A5.4.5 Guidance

          1. An example of how to calculate the overall net open position is as follows:
          YEN EURO GB   Saudi Riyal $   Gold
          +50 +100 +150 -20 -180 -35
          TOTAL +300 TOTAL -200 TOTAL 35
          2. The Foreign Exchange Risk Capital ChargeG would be 8% of the higher of either the net long currency positions or the net short currency positions (i.e. 300) plus the net position in gold (35) = 335 x 8%=26.8.
          3. Forward currency and gold positions will normally be valued at current spot market exchange rates. Using forward exchange rates would be inappropriate since it would result in the measured positions reflecting to some extent current interest rate differentials. However, an Authorised FirmG which bases its normal management accounting on net present values is expected to use the net present values of each position, discounted using current interest rates and valued at current spot rates, for measuring its forward currency and gold positions.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Treatment of Accrued Interest and Expenses, Forwards, and Structural Positions

      • PIB A5.4.6

        (1) An Authorised FirmG must include interest accrued and accrued expenses as a position.
        (2) If an Authorised FirmG includes future income/expenses it must do so on a consistent basis and not include only those expected future flows that reduce its position.
        (3) An Authorised FirmG may exclude any positions which it has deliberately taken in order to hedge partially or totally against the adverse effect of the exchange rate on its Capital ResourcesG , from the calculation of net open currency positions, if each of the following conditions is met:
        (a) the positions are of a structure that is of a non-dealing nature;
        (b) the Authorised FirmG has notified the DFSAG in writing of its intention to rely upon this RuleG ; and
        (c) any exclusion of the position must be applied consistently, with the treatment of the hedge remaining the same for the life of the assets or other items.
        (4) An Authorised FirmG need not include positions related to:
        (a) items which are deducted from its capital when calculating its Capital ResourcesG , including investments in non-consolidated subsidiaries; or
        (b) other long-term participations denominated in Foreign CurrenciesG which are reported in the published accounts at historic cost.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]