An Exposure can be
defined as a Contracted, Projected or Contingent Cash Flow whose magnitude is not certain
at the moment. The magnitude depends on the value of variables such as Foreign Exchange
rates and Interest rates.
The Colour of Money - Ongoing issues in Risk Management
The company will determine and analyse its Foreign Exchange exposures.
Determination:
The following cash flows/ transactions will be considered for the purpose of exposure
management.
Variable / Cash Flows
Transaction Type
Contracted Foreign Currency Cash Flows
Foreign Interest Rates, whether Floating or Fixed
Cash Flows from Hedge Transactions
Projected/ Contingent Cash Flows
Both Capital and Revenue in nature
All Interest Payments/ Receipts
All Open hedge transactions
Both Capital and Revenue in nature
Cash Flows above $100,000/- in value will be brought to the notice of the Exposure
Manager, as soon as they are projected.
It is the responsibility of the Exposure Manager to ensure that he receives the
requisite information on exposures from various sections of the company in time.
Analysis
These exposures will be analysed and the following aspects will be studied:
Foreign Currency Cash Flows/ Schedules
Variability of Cashflows - how certain are the amounts and/ or value dates?
Inflow-Outflow Mismatches / Gaps
Time Mismatches / Gaps
Currency Portfolio Mix
Floating / Fixed Interest Rate ratio
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