Law Summary
Definitions of Foreign Exchange Positions
- Long FX Position: The amount by which banks’ foreign currency assets exceed their foreign currency liabilities.
- Short FX Position: The amount by which banks’ foreign currency liabilities exceed their foreign currency assets.
Allowable Limits on Foreign Exchange Positions
- Banks’ long FX position must not exceed 5% of their unimpaired capital or US$10 million, whichever is smaller.
- Banks’ short FX position must not exceed 20% of their unimpaired capital.
- These limits are established to manage banks’ exposure to foreign exchange risk and promote financial stability.
Settlement of Excess Positions
- Any FX position that exceeds the allowable limits must be settled daily.
- This ensures that banks regularly reconcile and adjust their FX exposures to remain within prescribed boundaries.
Compliance Period for Existing Excess Positions
- Banks that exceed the allowable limits at the time this Circular takes effect have 2 days to reduce their FX positions to within the prescribed limits.
- This provision enforces rapid compliance to mitigate risks associated with excessive FX exposure.
Review of Prescribed Limits
- The prescribed limits on FX positions are subject to review 90 days after the date of issuance of this Circular.
- This allows the Monetary Board to reassess the adequacy of limits in response to evolving economic and financial conditions.
Effectivity
- The Circular took effect immediately upon issuance on July 31, 1997.
- Immediate effect underscores the urgency in regulating foreign exchange exposure within banks to maintain monetary stability.