Risk in forex Operations
- Exchange Risk – Movement in Exchange Rate
- Transaction Exposure
- Translation Exposure
- Operating / Economic Exposure
- Settlement Risk
- Pre Settlement Risk –> Not an absolute risk for the bank
- Post Settlement Risk –> Complete risk and loss for the bank
Avoid By – Settlement System, Operation on single time basic, RTGS basic
- Liquidity Risk
- Mismatch in maturity pattern of Assets and Liability
Avoid By – Control on mismatch
- Country Risk / Sovereign Risk
- Reduce by disclaimer clauses in contract and subject to third country jurisdiction
- Fixed county wise exposure limits
- Interest Rate Risk
- Interest rate risk arises due to adverse movement of interest rates
Avoid By – Derivative Product like interest rate swaps, Currency swaps & Forward Rate agreements
- Operational Risk
- Control by State of art system, Contingency plan, Disaster control / Recovery procedures, Back-up arrangement for man and machine and Monitoring duplication at different site
- Legal Risk
- Non Compliance of government guidelines and wrong understanding of rules