Other Scenarios - Variation in Interest and Exchange Rates Sample for a Banking Sector

          Other Scenarios - Variation in Interest and Exchange Rates Sample for a Banking Sector

PART: 16

 11.4. Other Scenarios

 11.4.1. Variation in Interest and Exchange Rates

11.4.1.1 .In the ordinary course of business, the Bank does not have a large exposure to movements in exchange rates unless they are connected to changes in interest rates.  If losses are experienced in foreign currency assets then an exposure would arise.  Should the Bank experience losses in foreign currency assets, any provisions necessary to cover those losses would always be held in the asset currency.  Any loss, if realised, would be  converted to the base currency, EURO, thus closing out any exchange exposure.

11.4.1.2. The exposure to interest rate movements has been partly mitigated by the move to purchase floating rate assets but some fixed rate paper remains which could create an interest rate risk. However, with the current global economic climate, and the expectation that central bank interest rates will be kept at constant low levels at least until the end of 2001, the current level of fixed rate assets should not cause much threat regarding interest income risk.

11.4.1.3. The prospect of higher inflation should indicate significantly higher interest rates before the end of the Plan period but this does not seem likely in the near future particularly as the so called austerity measures growth introduced by the present Coalition Government have yet to bite.