DOI: https://doi.org/10.18371/fcaptp.v1i32.200285

MONITORING OF EXCHANGE RISK OF BANKS BASED ON THE CONSOLIDATED BALANCE SHEET INDEX

L. V. Kuznetsova, A. N. Kuznietsov, Ju. B. Derkach

Abstract


The paper deals with basic approaches to monitoring of the currency risk. The purpose of the paper is to substantiate the theoretical and methodological foundations of the complex application of risk assessment methods to prevent the adoption of its excessive level, as well as instruments for monitoring the profitability of operations in the foreign exchange market, based on the calculation of the consolidated balanced index.

It was determined that in the context of the volatility of the national currency the exposure of banks to currency risk increases significantly, it means that is, the magnitude of the consequences of its manifestation for most financial intermediaries increases. The authors of the paper consider the system of currency risk management as a set of goals, principles, functions, methods, tools and specific techniques of purposeful, continuous influence of the management system on the managed one for timely estimation and monitoring of currency risk in order to minimize it and achieve specified parameters of currency yields.

In according to current management standards, implemented by leading financial institutions and international regulators, currency risk monitoring mechanisms must not only timely and effectively identify deviations from key risk targets, but also provide for the ability to identify unforeseen situations.

It was proved that that the monitoring tools, policies and procedures have to meet a number of criteria, which are taken into account at the achievement of the main goals of the bank and increase its resistance to external shocks on the foreign exchange market. Taking into account the fact that the value of currency risk by the ES metric is included in the calculation of the consolidated balanced index, the change in the regulatory regimes is made on the basis of the projected deviations of the CEI from the target corridor, recorded at the initial stage in determining the level of risk exposure of the bank. Thus, the proposed balanced approach to forecasting involves the use, on the one hand, of statistically reliable quantitative analysis tools and, on the other hand, qualitative environmental change signals that aggregate the benefits of structural methods, while providing the flexibility and timeliness of managerial decision-making. 

The specification of currency risk management regimes should be tailored to the specific features of a particular bank and have a combinatorial nature that involves the integration of individual impulses by analysis tools, forecasting, time horizons and levels of management, as well as in terms of components of the CEI consolidated balance sheet and risk level of activity in the foreign exchange market. This approach allows for the flexibility of management systems and their adaptability to the external conditions of the bank, and the use of quality monitoring signals increases the speed of decision-making and elimination of deficiencies that can be inherent in econometric assessment tools.


Keywords


currency risk; banks; monitoring; balanced index; national currency; volatility

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References


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ISSN (print) 2306-4994, ISSN (on-line) 2310-8770