Foreign exchange forward contract and Systemically Important Bank: Difference between pages

From ACT Wiki
(Difference between pages)
Jump to navigationJump to search
imported>Doug Williamson
(Add link.)
 
imported>Doug Williamson
(Add links.)
 
Line 1: Line 1:
A transaction which solely involves the exchange of two different currencies:
(SIB).


#on a specific future date
A bank whose disorderly failure would, because of its:
#at a fixed foreign exchange rate which is pre-agreed at the outset of the contract.


(i) Size,
(ii) Complexity, and


Foreign exchange forward contracts are used - among other purposes - for hedging forward foreign exchange exposures.
(iii) Systemic interconnectedness
For example known or likely future currency receivables and payables.


They are priced by adjusting the spot foreign exchange rate to reflect the interest rate differential between the two currencies involved for the forward period.
cause significant disruption to the wider financial system and to economic activity in its (main) country or region of operation.




Both of the parties to the forward contract are committed to the exchange.
For this reason, SIBs are subject to more stringent regulation and capital adequacy requirements than other institutions.
 
A forward contract differs in this respect from an option. In an option contract, only the option writer is committed.
 
 
Also known as a Forward foreign exchange contract, or a Foreign exchange forward.




== See also ==
== See also ==
*[[Contract]]
* [[Bank]]
* [[Deal contingent forward]]
* [[BSBY]]
* [[Forward contract]]
* [[Capital adequacy]]
* [[Hedging]]
* [[Financial institution]]
* [[Non-deliverable forward]]
* [[Global SIFI]]
* [[Option]]
* [[Regulation]]
* [[Synthetic]]
* [[Systemic risk]]
* [[Systemically Important Financial Institution]]  (SIFI)
* [[Too Big To Fail]]


[[Category:Accounting,_tax_and_regulation]]
[[Category:The_business_context]]
[[Category:Identify_and_assess_risks]]
[[Category:Manage_risks]]
[[Category:Manage_risks]]
[[Category:Risk_frameworks]]
[[Category:Risk_reporting]]

Revision as of 16:26, 17 March 2022

(SIB).

A bank whose disorderly failure would, because of its:

(i) Size,

(ii) Complexity, and

(iii) Systemic interconnectedness

cause significant disruption to the wider financial system and to economic activity in its (main) country or region of operation.


For this reason, SIBs are subject to more stringent regulation and capital adequacy requirements than other institutions.


See also

Retrieved from ‘https://wiki.treasurers.org/w/index.php?title=Foreign_exchange_forward_contract&oldid=46426’