transactions carried out through the electronic broker EBS grew to 250 billion US dollars. In 2005, Alfa-Bank took a leading position in the Russian currency market of the CIS and Baltic countries. The economic integration of Russia with Kazakhstan and the Republic of Belarus has made it possible to increase the volume of transactions with the Belarusian ruble and the Kazakh tenge.
The development of Alfa-Bank and active work with Western counterparties made it possible to strengthen the Bank’s position in the international market. From year to year, the bank introduces new products to meet the needs of a wide variety of clients - both counterparty banks and various financial institutions, as well as a wide range of corporate clients.
The product line includes a whole range of financing transactions, both within the framework of blank lending to customers, and a number of refinancing transactions secured by various financial assets. The structure of operations for the formation of the Bank's liabilities includes operations of attracting interbank loans, issuing its own bills, and various refinancing operations.
Fig.2 Average annual volume of transactions of Alfa-Bank OJSC
2.4 Analysis of the profitability of foreign exchange transactions of OJSC Alfa-Bank
Bank income is the amount of money received from the results of active operations. In accordance with the developed accounting policy, the bank's income includes income directly related to banking activities and not related to the main activities of the bank, but providing for general banking activities. All income items can be divided into interest income and non-interest income, depending on the type of income transaction. When accounting for interest and commission income in bank institutions, the accrual principle is used. All transactions performed are recorded when they took place, regardless of the time of receipt or payment of funds. Revenues are considered earned in the period in which the related transaction occurs, and not when the funds are actually received. Interest income is accrued on balances on correspondent accounts opened with other banks, as well as on deposit accounts and on transactions with securities. The amount of interest rates, the procedure for calculating interest, the procedure for their payment are determined in agreements between the bank and the client. Revenues from the last day are in some cases taken into account in the following month, when the reporting date is the end date of the transaction. This situation also arises when it is impossible to determine the amount of income due to the lack of necessary data to determine it, despite the fact that the service was provided in the previous month. Interest is calculated using the “fact/fact” method (the actual number of calendar days in a month and year is taken into account).
A quantitative analysis of Alfa-Bank's income structure is considered in determining the share of income items in the total amount. A comparative analysis of both total income and each of their items is carried out for the corresponding time period. The analysis of the structure is based on the percentage values of each to the total amount. Changes in percentage indicators indicate changes in the share of articles in the overall indicators.
In 2004, income from foreign exchange transactions amounted to $18.2 million, which accounted for 13.7% of total income; in 2005, income from foreign exchange transactions increased by $3.8 million and amounted to $22 million. , which amounted to 14.6% of total income. This is clearly depicted in Fig. 3.
Figure 3. Share of income from foreign exchange transactions in total income
All income items can be divided into interest income and non-interest income, depending on the type of income transaction. This is clearly depicted in Table 1.
Table 1. Structure of income and profitability from foreign exchange transactions for the analyzed period
| interest | Total amount, dollars | Share in income, % |
| 1. Interest on balances on NOSTRO accounts | 26 458,58 | 8,2 |
| 2.Interest on interbank loans of non-resident banks in rubles | 16 134,54 | 5,0 |
| 3.Interest on interbank loans in hard currency | 18 247,45 | 5,6 |
| 4. Income from conversion operations | 181 614,76 | 56,1 |
| 5.Commission from funds transfers on behalf of clients | 1 919,85 | 0,6 |
| 6. Income from permits to export currency | 2 479,00 | 0,8 |
| 7. Income from the sale of foreign currency for travel expenses | 2 988,00 | 0,9 |
| 8. Income from the sale of traveler's checks | 1 275,58 | 0,4 |
| 9. Income from the sale of currency | 14 980,00 | 4,6 |
| non-interest | ||
| 1. Income for issuing customs certificates | 547,60 | 0,2 |
| 2. Income for issuing certificates to clients | 289,50 | 0,1 |
| 3. Commission for bank transfers, requests, clarifications | 16 658,56 | 5,1 |
| 4. Income for issuing certificates of declaration of currency values | 314,58 | 0,1 |
| 5. Income from a currency exchange office under agency agreements | 7 456,00 | 2,3 |
| Income - total | 323 819,00 | 100 |
We present the sources of income in the form of Table 2 and Fig. 4.
Figure 4. Sources of income of Alfa-Bank OJSC and their structure
Table 2. Alfa-Bank's sources of income and their structure
Interest income includes income that is calculated in proportion to time and amount and is compensation to the bank for the credit risk taken. These include:
1. Income from loans and deposits and other interest-bearing financial instruments, including fixed income securities;
2. Income in the form of amortization discount (premium) on securities;
3. Commission fees, for example, income from placing funds in the form of a loan or an obligation to issue it, which is determined in proportion to the time and amount of the obligation, income from leasing transactions.
Methods for transferring interest payments are determined in the loan agreement.
Interest income takes up the largest share in the income structure. In 2004, interest income from foreign exchange transactions amounted to 15.5% of the bank’s total income, in 2005 - 16.2%, which is an increase of 0.7 points compared to 2004. This can be seen in Figure 5.
Figure 5. The share of interest income from foreign exchange transactions in the overall structure of income of Alfa-Bank OJSC
Let's look at the sources and structure of interest income in Tables 3 and 4, and in Figures 6 and 7.
Table 3. Sources of interest income
Figure 6. Sources of interest income of OJSC Alfa-Bank
Table 4. Structure of distribution of interest income
Figure 7. Structure of interest income.
The share of indicators in Table 4 makes it possible to assess through what foreign exchange transactions such a volume of interest income was achieved. After conducting such an analysis, we will determine the factors that influenced the amount of interest income from foreign exchange transactions.
The main source of income is the bank's lending activities. Lending activity is influenced by the current situation in the economy: inflation processes, various restrictions from the Bank of Moscow, as well as factors such as:
1. An increase in the share of loan assets in total assets that generate income in the form of interest;
2. Change in loan assets compared to last year.
As data from the analyzed bank show, during 2004-2005, the growth rate of loan volumes increased from 0.95 to 1.26, i.e. reached a positive level for bank characteristics of more than 1. The interest rate level has a significant impact on lending profitability, as can be seen from Table 5.
Table 5. General assessment of plan implementation in terms of interest income
From the above data it is clear that the share of income from lending in 2005 decreased compared to 2004 by 10.78 percentage points.
Let's consider two factors (the amount of loans issued and the interest rate on the loan issued) that influenced the amount of interest income.
We present an analysis of the structure of resources and investments in foreign currency in Table 6.
Table 6. Structure of resources and investments in foreign currency
An analysis of the structure of resources and investments in foreign currency shows that during this period, a positive decrease in non-income-generating assets was 6.02 percentage points, i.e. It has become more profitable to place available funds. However, there is an increase in expensive resources by 14.01 percentage points and a decrease in free resources by 4.3 percentage points, which is explained by a decrease in own currency and the placement of more expensive funds of borrowers.
As for interest income from interest received on correspondent accounts, their share in the total income for 2004 is 2.87%, for 2005 -1.74%, the decrease is explained by a decrease in the average interest rate on the world currency market.
In conditions of inflation and fierce competition, income growth due to interest decreases. The extent to which Alfa-Bank actively uses other sources of income is shown by an analysis of the structure of non-interest income.
The Bank is constantly expanding the range of paid services and non-traditional operations that increase the total income received.
The main channels for the receipt of non-interest income are: non-trading transactions, cash settlement operations, and other non-interest transactions. If we consider the structure of non-interest income as of 01/01/2006, the largest share is made up of cash settlement transactions - 65.9%, then non-trading transactions - 29.5%, others - 4.6%. Data on non-interest income for 2005 are summarized in Table 7.
Table 7. Structure of non-interest income
| Revenue channels | Amount, dollars | Oud weight, % |
| 1.Non-trading transactions | 7 456,00 | 29,5 |
| 2.Settlement transactions | 16 658,56 | 65,9 |
| 3. other income transactions | 1 151,68 | 4,6 |
| I T O G O | 25 266,24 | 100 |
The bank's expenses on foreign exchange transactions are classified as follows:
Interest paid;
Exchange rate differences in foreign currencies;
Other expenses.
We divide expense items into interest and non-interest expenses depending on the type of expense transaction.
Let us carry out an analysis with appropriate detail for each of the main expense items considered, presenting the data obtained in the form of tables 8, 9 and figures 8, 9.
Table 8. Expenses from foreign exchange transactions for the analyzed period
Table 9. Sources of expenses and their structure
Figure 8. Share of sources of expenses of Alfa-Bank OJSC
Figure 9. Share of interest and non-interest expenses
Interest expenses make up the bulk of foreign exchange expenses, so a detailed analysis of them is of great importance. Based on five periods, we calculate the average costs of foreign exchange transactions and present them in the form of Table 10 and Figure 10.
Table 10. Average costs from foreign exchange transactions in the overall structure of interest expenses
Figure 10. Share of cost sources in their structure
The data presented confirm that interest expenses play a predominant role in the total amount of Alfa-Bank's expenses on foreign exchange transactions and, therefore, it is necessary to conduct a more detailed analysis of them to identify the reasons that influenced their size.
When analyzing non-interest expenses, you should consider their structure and determine the place of each group of expenses in their total amount. The main part of non-interest expenses consists of settlement transactions - 67.33% of the total amount of non-interest expenses, then non-trading transactions - 31.44%, other - 1.24%. The distribution structure of average non-interest expenses over five periods is shown in Table 11 and Figure 11 .
Table 11. Average costs from foreign exchange transactions in the general structure of non-interest expenses
Figure 9. Share of groups of non-interest income of OJSC Alfa-Bank
An analysis of non-interest expenses shows that the bank should rationally reduce other cost items, avoiding unjustified expenses, such as fines and penalties paid for banking operations.
Chapter 3. Improving foreign exchange operations of Alfa-Bank OJSC
3.1 Measures to increase the profitability of Alfa-Bank’s foreign exchange transactions
At the present stage of development, increasing profits is possible by improving already implemented operations and introducing new ones.
Based on the analysis of foreign exchange transactions carried out in this thesis, the following ways to increase the profitability of a bank’s foreign exchange transactions are proposed:
operations to execute forward contracts for the purchase and sale of currency;
optimization of interest rates on foreign currency deposits and loans;
technologies for urgent operations
optimization of the operation of bank currency exchange offices;
opening of 10 new ATMs;
issue of credit cards;
issue of discount cards;
issuance of multicurrency smart cards;
account management via the Internet, mobile phones;
Let us consider the feasibility and profitability of using the most profitable of the proposed measures in banking practice.
Operations to execute forward contracts for the purchase and sale of currency.
The content of this service is as follows. On the day of the forward sale, the client is offered to pay a small part of the funds for the opportunity, after a certain time, to buy currency from the bank at a predetermined rate or sell it currency on the same terms. The amount the customer pays at the time of sale is called commission or bank income. By the time the forward is executed, the content of the operation is reduced to a regular non-trading operation. The client also makes a certain deposit to confirm the seriousness of intentions for the period between the sale and execution of the forward.
The benefit of the bank in providing this service is twofold:
free funds are attracted;
it becomes possible to almost completely plan work in non-trading operations, since it is known how much and at what rate foreign currency should be sold (purchased) after a certain period of time.
It should also be remembered that carrying out these operations is associated with a certain risk for Alfa-Bank - a sharp change in the exchange rate against the previously planned one is possible and you will have to sell or buy currency on unfavorable terms. This risk can be minimized by using the following methods:
clearly maintain a payment calendar for these obligations;
carry out full-scale “forward non-trading operations, coordinating distant obligations for the purchase and sale of currency.”
The operation with a forward has certain features. It provides for the bank and the buyer (legal or individual) to purchase the right to acquire (sell) currency assets (forward) on the date specified by the terms of the forward, with the fixation of the selling price at the time of conclusion (sale) of the forward.
The buyer of a forward has the right to refuse to purchase (sell) currency or the right to resell the forward to third parties.
The holder of a forward can be either an individual or a legal entity, but only an individual can exercise his right to purchase (sell) foreign currency.
The holder of a forward can exercise his right to purchase (sell) currency only within the period determined when concluding the forward. If the holder fails to exercise his right to purchase (sell) currency within the period specified by the forward, the latter loses its force and is no longer binding on the bank.
The formula for calculating the deposit when implementing a forward for the purchase of foreign currency is as follows:
AMOUNT OF DEPOSIT = (A-B)*360/C*K*Ost, (1)
where A is the expected market exchange rate at the time of implementation
forward;
B – selling rate under forward terms;
(A-B) – the difference in rates that must be covered by attracting a deposit and using it as a credit resource;
C – deadline for fulfilling forward obligations, days;
K – coefficient of attraction of bank resources in comparison with the discount rate of the Central Bank of the Russian Federation;
Ost. – discount rate of the Central Bank of the Russian Federation at the time of conclusion of the forward.
The formula for calculating the deposit for forwards for sale has a similar form, only the elements in brackets are swapped:
AMOUNT OF DEPOSIT = (B – A)*360/C*K*Ost, (2)
where B is the purchase rate under the terms of the forward;
A – the bank’s expectations regarding the minimum purchase rate.
The general principle of implementing a forward comes down to the following: it can be attractive at the exchange rate, and possible losses in the exchange rate should be easily covered by the benefits from using the deposit amounts as a resource.
Optimization of interest rates on foreign currency deposits and loans.
Price competition is to provide the most favorable financial conditions for similar services. For example, the highest interest rates or the lowest tariffs. The use of this type of competition gives fairly quick and good results.
Undoubtedly, one of the most important and decisive factors stimulating clients to save resources in this particular bank is the size of the interest rate on the deposit, the interest calculation regime, etc., that is, the bank’s interest rate policy.
The size of the deposit interest is set by a commercial bank independently, based on the discount rate of the Central Bank of the Russian Federation, the state of the money market and its own deposit policy.
In order to interest depositors in placing their funds in Alfa-Bank, various methods of calculating and paying interest are used. Let's look at some of them.
The traditional type of income accrual is simple interest, when the actual balance of the deposit is used as the basis for calculation, and at an established frequency, based on the interest stipulated in the agreement, the income on the deposit is calculated and paid.
Another type of income calculation is compound interest (calculating interest on interest). In this case, after the expiration of the billing period, interest is accrued on the deposit amount and the resulting amount is added to the deposit amount. Thus, in the next billing period, the interest rate is applied to the new base, which has increased by the amount of previously accrued income. It is advisable to use compound interest if the actual payment of income is made at the end of the deposit period.
It is attractive for depositors to use an interest rate that progressively increases depending on the time the funds are actually in the deposit. This procedure for calculating income stimulates an increase in the storage period of funds and protects the deposit from inflation.
Some banks offer interest payments in advance to compensate for inflation losses. In this case, the investor, when placing funds for a period of time, immediately receives the income due to him. If the agreement is terminated early, the bank will recalculate the interest on the deposit and excess amounts paid will be withheld from the deposit amount.
For a depositor choosing a bank to place funds, the determining factor (other things being equal) may be the procedure for calculating the interest rate. The fact is that when calculating, some banks base their calculations on the exact number of days in a year (365 or 366), while others use an approximate number (360 days), which is reflected in the amount of income.
Attracting depositors' funds to commercial banks is facilitated by a change in the procedure for paying interest. After all, most commercial banks pay interest on deposits once a year. Therefore, in conditions of an acute shortage of banking resources, commercial banks began to pay interest on deposits quarterly or even monthly, which allowed them to attract funds at lower interest rates.
As foreign and domestic experience shows, the most important incentive for a depositor is the level of interest paid by banks on deposit accounts. Therefore, an obvious measure to attract additional banking resources is to increase the interest rate on deposits.
Based on the results of marketing research, it was found that the elasticity of the interest rate on deposits is 3.6. Those. an increase in the deposit interest rate by 1% will lead to an increase in the volume of attracted funds by 3.6%. Based on information on the amount of deposit funds of Alfa-Bank in 2006, as well as using the results of marketing research, it is possible to approximately calculate how an increase in the interest rate on deposits of individuals by 1% will affect the volume of funds raised. It should be taken into account that interest rates for different types of deposits differ significantly, and therefore the average interest rate must be used for calculation. The average interest rate on deposits is calculated as the ratio of interest expenses to all funds attracted to deposits.
According to the Bank's annual reports in 2005, the Bank's interest expenses amounted to 95,186.7 thousand. dollars. The volume of funds attracted to deposits from individuals amounted to 559,922 thousand dollars. Consequently, the average interest rate on deposits of individuals was:
95 186,7 / 559922*100 = 12%.
Taking into account the elasticity of the deposit interest rate, we will calculate what the volume of funds attracted to individual deposits will be if the rate increases by one percent.
559922*1.036 = 580079 thousand dollars.
Consequently, an increase in the interest rate by 1% will lead to an increase in attracted funds by 20,157 thousand dollars. Thus. banking resources increased by $20,157 thousand, placing them in profitable assets Alfa-Bank will be able to receive additional profit. The approximate amount of income from attracting additional resources can be calculated by knowing the average Alfa-Bank income from placing attracted resources. It is calculated similarly to the average interest rate on deposits, and is equal to the ratio of interest income to the total amount of assets. In 2005, the average income for the Bank from the placement of resources was
677 753 / 2 259 178 *100 = 30%
When calculating the profit received from the placement (Table 12) of additionally raised funds, it is necessary to take into account the reservation rate of raised funds, which at the time of calculation was 12%.
Table 12. Calculation of the result of increasing the deposit interest rate by 1%
Thus, it can be seen that an increase in the interest rate on deposits by 1% will lead to the attraction of additional resources in the amount of 20,157 thousand dollars, from the subsequent placement of which Alfa-Bank will receive additional income in the amount of 5,321.4 thousand dollars.
However, the constant use of this method leads to increased costs and, consequently, a decrease in the efficiency of the bank. The use of this method is advisable during a period of rapid growth of markets, most of which the bank hopes to conquer.
A characteristic feature of operations with futures contracts is that when buying or selling them, not the entire contract amount is paid, but only a deposit amounting to 2 to 5% of the contract value. Thus, it becomes possible to carry out transactions with leverage from 1:50 to 1:20, which significantly increases the monetary potential.
These deals provide virtually unlimited possibilities for speculation. In addition, they are simply necessary for the purposes of insurance (hedging) of price risks when concluding export-import trade transactions.
Let's look at the technologies for conducting some transactions.
An example of currency risk insurance is an operation carried out by a Russian importer of Swedish furniture. The contract size was approximately 300,000 USD, the exchange rate USD/SEK (US dollar / Swedish krona) 7.8100 kronor per dollar. Receipt of funds in dollars and payment of the contract in crowns were expected in three months. Expecting the krona to strengthen, the importer sold $300,000 against the Swedish krona on margin trading, for which he needed to open a bank guarantee account in the amount of $3,000. Three months later, the USD/SEK rate was 7.7200. The importer closed the position (bought US dollars against Swedish krona) at this rate, which brought him a profit of 27,000 SEK. This amount would have been lost by the importer as a result of the rise in the value of the crown if the contract had not been hedged in the manner described.
Suppose an importer from Russia needs $1,000,000 in 1 month on December 15, 2006 to pay for products that will be supplied from an American exporter. Since the importer is afraid of an increase in the dollar exchange rate, he decides to insure himself by concluding a forward contract with Alfa-Bank OJSC. The bank quotes the dollar/Russian ruble exchange rate for a forward transaction with a maturity of 1 month. By selling on a forward basis, the bank will incur debt and, as a result, the bank will have a short position in dollars. There will be risk associated with the open position. The bank wants to insure this risk. Insurance occurs through two options: through a combination of interest and foreign exchange transactions or a forward transaction on the interbank foreign exchange market. Since the forward rate is influenced by interest rates, in order to calculate the forward rate the bank will be guided by the first insurance option, namely a combination of interest and foreign exchange transactions:
Spot rate as of November 15, 2006 RUR/USD 26.6982 26.7044
Interest rate for 1 month:
In dollars – 9%; in Russian rubles – 14%
The bank takes out a loan in Russian rubles equal to 5,506,200 rubles at the spot rate, at 14% per annum for 1 month to purchase $1,000,000.
Loan interest = 5,506,200*0.14*30/360 = 64,239 rubles for 1 month
When repaying the loan, the bank needs to pay 5,570,439 rubles.
Next, the bank buys dollars to close the foreign exchange position. Since the bank does not need dollars for 1 month (when they are delivered to the importer), it will place them on the interbank foreign exchange market for a one-month period at 9% per annum and receive interest:
Interest on deposit = 1,000,000*0.09*30/360 = $7,500 for 1 month. That is, after 1 month the bank pays 5,570,439 rubles. and gets
$1,007,500.
Then the bank chooses one of the options for covering currency risk: either a combination of interest rate and currency transactions, or concluding a transaction at a lower forward rate. The bank decides to compensate the client’s transaction on the interbank foreign exchange market by concluding a forward transaction, playing on the difference in rates.
On the interbank foreign exchange market, the forward rate RUR/USD was 26.6885. By concluding an interbank transaction, the bank will receive a profit from insurance.
Thus, the bank concludes the following transactions:
So, when carrying out these operations, the bank receives a profit equal to
26 698 200-26 688 500 =
9700
General characteristics of foreign exchange transactions. Classification of currency risks, cases of their occurrence and manifestation. Basic methods of managing translational currency risks and ways to reduce their levels. Currency swap scheme mediated by a bank.
Characteristics of modern features of interbank foreign exchange markets. Internationalization of foreign exchange markets. Unification of foreign exchange transaction technology, settlements on correspondent bank accounts. Insurance of currency and credit risks.
Foreign exchange market and foreign exchange operations, licensing of banking foreign exchange operations. Exchange rate and currency quotes, cross rates, currency position. The right to establish direct correspondent relations with foreign banks, types of foreign exchange transactions.
The procedure for licensing commercial banks to carry out transactions with foreign currency. Classification of foreign exchange transactions. Types of foreign currency accounts and their mode of operation. Organization of international payments, currency control in commercial banks.
Ministry of Higher Education of Ukraine Donetsk State University Test work in the discipline International Monetary Relations
Bank operations with bills with the participation of residents. Receipt and transfer of bills of exchange by banks in the primary market. The bank purchases bills of exchange on the primary market for cash. Issuance by a bank of a bill of exchange to a resident by way of novation. Payment of the bill.
Studying the theoretical aspects of foreign exchange transactions by commercial banks. Analysis of trends in the country's domestic foreign exchange market. Features of foreign exchange transactions of the bank JSC Kazkommertsbank. Study of a conversion transaction (forward contract).
Operations with plastic cards, their registration. Issuing, acquiring on the territory of the Republic of Belarus. Features of accounting for currency transactions. Regulatory legal acts regulating operations with plastic cards. Example of calculations for a spot transaction.
Deposits in US dollars. Rules for conducting currency transactions. Banking transactions between the bank and the resident. Early termination of the deposit agreement. Purchase and sale of foreign currency. Transfer of deposits from Belarusian rubles to US dollars.
Studying the role and objectives of the monetary policy of the Central Bank of the Russian Federation. The concept and purpose of currency control is to protect the economy from sharp fluctuations in the monetary system. The policy of the Central Bank in the foreign exchange market, changes in the foreign exchange legislation of the Russian Federation.
Ministry of Education of the Russian Federation Kurgan State University Department of Customs and Commerce Coursework On the topic
Legal regulation of accounting for currency transactions in accordance with accounting. Features of the system of regulatory documents. General characteristics of the procedure for opening foreign currency accounts, necessary conditions and documents for this operation.
The essence and classification of foreign exchange transactions, foreign exchange risks. Legal basis for conducting foreign exchange transactions. Operations of commercial banks of the Russian Federation with foreign currency. Prospects for the development of foreign exchange transactions using the example of LLC CB "Neklis-Bank".
Carrying out foreign exchange transactions by the bank. The concept of "currency position", calculation of open and closed positions. Concepts: “foreign currency”, “currency transactions”, “currency exchanges”. Off-balance sheet liabilities for foreign currency and precious metals.
The concept and economic nature of currency risks, their features and causes of occurrence, stages of formation and significance. Types and characteristics of currency risk, methods of regulation. Mechanism and assessment of the effectiveness of insurance against currency risks.
The need for banks to calculate their total open currency position and establish its limitations. Description of existing problems with the NBU concept regarding the methodology for calculating the bank’s total currency position at the present stage, and ways to resolve it.
INSTRUCTIONS ABOUT CURRENCY REGULATION 1.2.1. Explanation of foreign currency 2.1. 2. Residents: a) individuals living in the AR, incl. citizens temporarily residing outside the AR
Legislative and regulatory regulation of accounting for currency transactions. Differences in the accounting treatment of current transactions and transactions related to the movement of capital. Principles of foreign exchange transactions in Russia. Licensing procedure for export and import.
As practice shows, transactions with foreign currency in the foreign and domestic markets are profitable. The analysis should separately determine the amount of profit from transactions with payment documents in foreign currency; profit from transactions with securities in foreign currency; profit from providing services to correspondent banks. In the process of analysis, the share of “working” correspondent accounts and expenses on them, the share of “non-working” correspondent accounts and losses on them are calculated. The amount of fines paid by the authorized bank due to its failure to fulfill contractual terms on foreign exchange transactions is assessed separately; impact of exchange rate differences on profit.
Determining the profitability of these operations using the simple interest formula in the form of an annual rate is not possible. Therefore, it is necessary to determine the profitability of selling and the profitability of buying foreign currency separately.
The amount of income from the purchase of foreign currency can be determined on the basis of the register of the purchased currency or the account card for the purchase and sale of foreign currency as follows:
V – volume of purchase;
TO Central Bank – ruble exchange rate against foreign currency;
TO pok – purchase rate.
The profitability of foreign currency purchase transactions in the form of an annual rate is determined by:
.
Having information about purchase rates, you can determine the amount of income from these operations:
.
In a similar way, you can determine the profitability of a foreign currency sale operation:
Therefore, income from the sale of foreign currency will look like:
.
Let us consider the features of analyzing the profitability of purchase and sale transactions of foreign currency in exchange trading conditions.
As is known, exchange rates of foreign currency against the ruble are set on the exchange in the context of transactions: today is the settlement period no later than the day the transaction is concluded, tomorrow is the settlement period no later than the next business day, spot is the settlement period no later than the second business day, spotnext is the term settlements no later than the third business day after the conclusion of the transaction. These rates are fixed when equality between supply and demand is achieved in the context of the specified types of transactions.
When concluding a transaction on the stock exchange to purchase foreign currency on “tomorrow” or “spot” terms, the credit institution on the day of conclusion can only determine the expected profitability or unprofitability of this operation. Since the “tomorrow” (and “spot”) rate is usually higher than the Central Bank rate on the day the transaction is concluded, it will be possible to determine the amount of the expected loss using off-balance sheet accounting data for these transactions. This value is defined as the difference between the ruble equivalent of the purchased currency, expressed at the Central Bank exchange rate on the day of the transaction, and the ruble coverage required to purchase this currency at the exchange rate of the transaction “tomorrow” (or “spot”):
If the Central Bank exchange rate increases before the settlement date for the concluded transaction, the actual loss on the transaction will be lower than expected. If the Central Bank rate decreases, then the real loss will exceed the expected one:
.
The expected income from the sale of foreign currency on the stock exchange is determined in a similar way:
,
and real profitability
.
The methodology for analyzing the expected and actual profitability (loss) of “spot” transactions will be similar to that described above, with the only difference being that from the date of the transaction to the date of its execution, the Central Bank exchange rate may change twice. If these changes are unidirectional, then this methodology can be applied for the entire period, otherwise calculations must be carried out separately.
Determining the profitability of transactions with securities
Investment operations of a credit institution are associated with long-term investment of funds in production, securities or joint venture rights.When analyzing profits from investment operations, first of all, it is necessary to determine its share in the total amount of profit and then, as part of investment profits, calculate the profit received from investments in production, securities, and joint activities. When analyzing the profit received from investments in securities, it should be taken into account that the difference between their sale price and purchase price must cover the costs of taxes on transactions with securities and commissions paid to the exchange.
Analysis of transactions with securities is intended to identify the most profitable and promising investments in securities and improve the quality and structure of the credit institution's stock portfolio.
During the analysis, the portfolio is divided into the following parts:
by type of securities (portfolios of shares, bonds, certificates of deposit and bills);
according to the purpose of conducting operations with them (controlling management portfolio, non-controlling portfolio, investment, trading portfolios, repo portfolio);
according to the issuer’s form of ownership (portfolio of government and corporate securities).
on the type of security (share, bond, certificate of deposit, bill);
on the purpose of the operations (for long-term storage, for resale, etc.);
on the form of ownership of the issuer (state or corporate);
on the form of income payment (coupon or zero-coupon);
on the type of income paid (interest or discount securities);
based on profitability (fixed and variable income).
Current yield analysis is determined by
I - current portfolio return for the year;
D – dividends received over a period of time t ;
P – purchase (nominal) value of shares;
t – the number of days for which dividends are accrued.
To determine the real level of current portfolio yield, it is necessary to adjust this indicator taking into account the percentage of inflation:
Real current portfolio return for the year;
i – annual inflation rate.
If the investment period for which the stock's return is assessed includes the receipt of dividends and ends with the sale, then in this case the total return on the stock for the period should be determined, which is calculated as the ratio of the total return for the period to the purchase price of the stock. In turn, the full income for the year will consist of the current annual income and the increase in the value of shares minus the costs of buying and selling securities:
,
– full income for the year;
S - sale price of shares;
P – purchase price of shares;
WITH - expenses for purchase and sale;
Analysis of the trading portfolio. The profitability of a trading portfolio is influenced by a number of different factors, such as: changes in market prices that affect the increase in the market value of shares, acceleration of portfolio turnover.
,
I m – marginal return of the share, reduced to the annual rate;
And the analysis of the turnover of the trading portfolio of shares is carried out by determining the indicator in days:
– portfolio turnover in days;
– average value for the account 50802 (50902);
– account credit turnover 50802 (50902) for t period of time.
The portfolio turnover rate in days shows how many days on average a security is in the trading portfolio. The higher the turnover rate of securities, the higher the liquidity of the portfolio as a whole. It is advisable to conduct a comparative analysis of the turnover of shares of various issuers, as well as a factor analysis of the turnover rate of the trading portfolio over time. All this will improve the qualitative composition of the trading portfolio and its quantitative characteristics.
Repo Portfolio Analysis . REPO operations occupy an intermediate position between investment operations and lending operations against securities, since one party sells a block of shares to the other with an obligation to buy it back at a pre-agreed price. A repo transaction differs from a lending transaction secured by securities in that ownership of the securities is transferred to the bank until the reverse transaction is executed. Income from a repo transaction is defined as the excess of the sale price of securities (on the reverse part of the transaction) over their purchase price, reduced by the amount of transaction expenses.
The profitability of a repo transaction can be determined using the following formula:
,
t – transaction period in days;
WITH – transaction costs.
The profitability of the transaction for the recipient can be increased by reducing the costs of transferring securities in the case of using a trust repo, but the credit risk also increases significantly.
Analysis of a portfolio of non-government discount bonds . The purpose of forming such a portfolio is to generate income in the form of the difference between the par value and the purchase price (book value) of the bonds at maturity.
The purpose of analyzing such a portfolio is to estimate its yield to maturity:
,
I – yield to maturity;
N
P pog – purchase price of the bond;
C – costs of purchase and sale;
t – the period from the moment of purchase to maturity of the bond.
At the same time, the current investment risk ( R ) is characterized by the ratio of the amount of reduction in the purchase price of a bond in comparison with the market price and its purchase price:
P market – market price of the bond.
V – the amount of the created reserve.
Analysis of transactions with corporate coupon securities . Receipt of coupon income can be carried out either upon redemption of the bond, or during the entire circulation period. In the first case, the purpose of the analysis is to assess their yield to maturity, in the second - to assess their current and total yield.
Interest income is determined:
,
P nom – face value of the bond;
s – annual interest rate;
n – the number of years for which interest is accrued.
If a bond is purchased at a price different from its par value, then its yield is determined by the formula:
,
I – bond yield to maturity;
WITH - expenses.
If a bond is purchased on the secondary market and the purchase and sale agreement specifies the accumulated interest income due to the previous bond holder separately from the purchase price, then the yield of the bond is determined as follows:
,
I r – interest paid when purchasing a bond.
This amount is recorded on the active balance sheet account 61405; after repayment, it is written off as a debit to account 61305.
The assessment of current and total profitability is determined as follows:
If bonds have a fixed coupon
s – fixed annual coupon rate;
I – current profitability.
If bonds have a floating or variable coupon, then the average annual coupon rate is first determined:
,
t – duration of coupon periods in days;
s 1 ,s 2 ,…s n – coupon rate for periods t .
Total profitability is determined by:
The procedure for determining the profitability of a trading portfolio of coupon bonds also depends on the type of bonds: bonds with interest payment at the end of the term, or with periodic interest payment.
Coupon income received when redeeming coupons for the period;
The number of days the bond is on the balance sheet.
The profitability of transactions with a repo portfolio of corporate bonds depends on a number of factors: the purchase price, the sale price, the amount of coupon income paid on the first part of the transaction and received on the second, the period of the transaction.
Analysis of transactions with certificates of deposit . A portfolio of certificates of deposit is formed to receive interest (coupon) income when the certificate is redeemed on time at the interest rate indicated on the form. The amount of interest income received upon redemption of the certificate is determined:
,
Interest income;
Nominal value of the certificate;
Annual interest rate.
Annual yield to maturity
If a certificate of deposit is presented for payment before the maturity date, the credit institution pays the holder the deposit amount and interest at the “on demand” rate.
,
Rate on demand deposits;
The period from issue to maturity;
Total amount of payments.
If the certificate is sold between the dates of issue and redemption, then the amount of accumulated interest income is distributed between the buyer and the seller: the buyer pays the seller, in addition to the face value of the certificate, the amount of income due for the period from the moment of issue to the moment of sale of the certificate.
.
Profitability analysis of transactions with bills of exchange . The information base for analyzing the profitability of transactions with bills of exchange is the balance of balance sheet accounts for the accounting of urgent bills and data on the amounts received upon redemption (sale) of the bill.
If the bill is discounted, then its purchase price is determined as the difference between the par value of the bill and the discount amount:
,
Purchase price;
Denomination of the bill;
The number of days from the date of purchase of the bill to its repayment;
Discount rate.
If a bill of exchange is sold before the maturity date, then the income on it will be divided between the seller and the buyer, taking into account the discount rate and the number of days until the bill's maturity. The profitability of this operation is determined as follows:
,
Number of days until maturity at the time of purchase;
The number of days until maturity at the time of sale.
Section 5.
Analysis of bank expenses.
The main part of the bank's expenses consists of the costs of forming its resource base, which in turn depend on the volume, structure and average price of attracting liabilities.
Dividing the bank's liabilities into own and borrowed allows you to determine the proportion of its paid and free resources, to establish the composition and volume of expenses incurred in connection with raising funds.
The funds, reserves and profits included in the bank's own funds are free for the bank, in the sense that they have already been paid for earlier, and the bank does not incur any costs for them in the reporting period. Moreover, if necessary, he can make expenses at their expense.
It should be taken into account that the immobilization of the bank’s own funds (investments in securities; capital investments; transfers to suppliers for factoring operations, other organizations; diversions into settlements and receivables; use of profits) can lead to a narrowing of the bank’s entire resource base and, as a consequence, , to a possible increase in costs for its replenishment.
The cost of attracting resources depends mainly on the types and timing of their attraction, the level of bank management, and the state of market conditions. Therefore, when carrying out the analysis, it is necessary to evaluate the influence of the forms and methods of attracting resources on the amount of expenses incurred by the bank; the share of each type of attracted and borrowed funds (demand accounts, time deposits, interbank loans, debt issued by the bank, etc.) in their total volume; determine the share of the most expensive resources; compare the amount of expenses of each type with the corresponding amounts of attractions.
If we talk about the cost of the credit resources themselves, then it develops under the influence of such factors as:
Structure of the bank's credit resources;
Planned costs and profits for a specific loan; its term;
Type and degree of risk; security;
Type of borrower and his financial condition;
Attractiveness of the investment project;
Loan size and other factors.
TO macroeconomic factors that form the cost of credit resources include:
Stability of money circulation in the country;
Central Bank refinancing rate;
Interbank lending rates;
Demand for loans and other factors.
Section 6.
Analysis of financial results and profits
Analysis of the financial results of a commercial organization (enterprise) is, of course, one of the most important components of the financial analysis of its activities aimed at making a profit, and is based largely on data from Form No. 2 “Profit and Loss Statement” of the accounting (financial) statements.
Analysis of financial results according to the income statement is carried out according to the principle of deduction and allows us to study their formation.
In this case, the results of analytical calculations are usually presented in the form of a table. 1.
Table 1. Table format for analyzing financial results
Analysis of the financial results of a commercial organization begins with studying the volume, composition, structure and dynamics of profit (loss) before tax in the context of the main sources of its formation, which are profit (loss) from sales and profit (loss) from other activities, i.e. balance of other income and expenses.
Based on the results of the calculations, a conclusion is drawn about the impact on the deviation of the amount of profit (loss) before taxation of changes in the values of the sources of its formation: profit (loss) from sales and profit (loss) from other activities.
Since the quality of profit (loss) before tax is determined by its structure, it is advisable to pay special attention to the change in the share of profit from sales in profit before tax. Its decrease is considered as a negative phenomenon, indicating a deterioration in the quality of profit before tax, since sales profit is the financial result of the current (main) activity of the enterprise and is considered its main source of funds.
Therefore, the following ratio of the growth rate of sales profit (TPpr) and the growth rate of profit before tax (TPpdn) is desirable:
TRpr>TRpdn. (1)
This growth rate ratio reflects a situation in which the share of sales profit in profit before tax is at least not decreasing and, therefore, the quality of profit before tax is at least not deteriorating.
Analysis of profit (loss) from sales begins with studying its volume, composition, structure and dynamics in the context of the main elements that determine its formation: revenue (net) from sales, cost of sales, administrative and commercial expenses. In this case, during the analysis of the structure, revenue (net) from sales is taken as 100% as the largest positive indicator.
Based on the results of analytical calculations, a conclusion is drawn about the impact on the deviation of profit (loss) from sales of changes in the values of each of the elements that determine its formation.
TRvrn>TRsp, (2)
where TRvrn is the growth rate of revenue (net) from sales;
TRsp is the growth rate of the total cost of goods sold (the sum of the cost of sales, administrative and commercial expenses).
This ratio of growth rates leads to a decrease in the share of the full cost in revenue (net) from sales, and, accordingly, to an increase in the efficiency of the current activities of a commercial organization. If the condition for optimizing sales profits is not met, the reasons for its failure are identified.
Section 7.
Analysis of the efficiency of banking operations.
The efficiency of a bank is determined by profitability
its operations and its ability to maximize profits while maintaining the required level of risk. Profitability reflects the positive overall result of the bank’s activities in the economic, financial and commercial spheres.
Profit is the main indicator of a bank's performance. The difference between a commercial bank's income and expenses constitutes its gross profit. It is the gross profit indicator (i.e., excluding taxes and distribution of residual profit) that characterizes the efficiency of a commercial bank.
The need to maximize profits from one’s own activities is dictated by the need to cover all bank costs (including losses associated with non-return of bank assets), generate dividends for payment to shareholders, as well as the need to create an intra-bank source of growth of the bank’s equity capital.
In addition, the profitable activity of a bank is an indicator of the success of its work and, therefore, can serve as an important factor in the formation of its reputation, which will not only help attract new shareholders, but also strengthen customer confidence.
The results of the activities of commercial banks, all expenses incurred and income received in the past financial year are recorded in the profit and loss account.
This document allows you to study the structure and correlation of individual items of income and expenses of the bank, as well as their groups, analyze the profitability of specific bank operations and factor analysis of the profit of a commercial bank.
In the revenue part, three groups of items can be distinguished:
1) income from the bank’s operating activities (from interbank transactions, transactions with clients, securities, leasing transactions). They, in turn, are divided into: interest income (received from interbank loans or received from commercial loans) and non-interest income, including: income from investment activities (dividends on securities, income from participation in joint work of enterprises and organizations and etc.); income from foreign exchange transactions; income from received commissions and fines;
2) income from side activities, i.e. from leasing office and other premises, equipment that is temporarily vacant, as well as the provision of non-banking services; income reflected in a number of items and not earned by the bank, used reserves, results from the revaluation of long-term investments;
3) income reflected in a number of items and not earned by the bank, used reserves, results from the revaluation of long-term
investments.
The expense side of the profit and loss account can be grouped as follows:
1) operating expenses, which include interest and commissions paid on transactions with clients (including banks), according to
attracting long-term loans in financial markets, etc.;
2) expenses related to ensuring the functioning of the bank,
including administrative and business expenses and depreciation charges according to established standards;
3) expenses to cover banking risks, which include
creation of reserves to cover credit losses and other unprofitable transactions.
If we group a bank’s gross income and expenses according to the principle of “interest” and “non-interest”, then interest income is interest received in rubles and foreign currency, and expenses are accrued and paid interest in rubles and foreign currency. All other income and expenses are classified as non-interest expenses. These include: operating income and expenses; commissions paid and received on services and correspondent relationships; income and expenses from operations with securities and the foreign exchange market; expenses for ensuring the functioning of the bank; expenses for maintaining the management apparatus; business expenses; other expenses; paid and received fines, penalties, penalties, interest and commissions from previous years, etc.
Section 8.
Analysis of bank liquidity indicators and solvency
A commercial bank must manage liquidity and maintain it at the required level independently by pursuing economically sound policies in all areas of its activities and complying with the requirements imposed on it by the Central Bank of the Russian Federation.
Commercial banks manage their solvency using methods for recognizing, assessing and controlling the risk of loss of liquidity and solvency.
Solvency also means reliability, that is, the ability to fulfill one’s obligations in any market situation, and not in accordance with upcoming payment deadlines.
The reliability of a bank depends on many different factors. Conventionally, they can be divided into external and internal.
External factors include factors caused by the impact of the external environment on the bank, that is, factors that determine the state of the financial market, the national and world economy, the political climate in the country, as well as force majeure circumstances.
Internal factors include factors determined by the professional level of personnel, including senior staff, and the level of control over the operations carried out by the bank.
Let's look at the concepts of some risks.
Liquidity risk is associated with the loss of the ability to quickly convert one's assets into cash or attract additional resources in sufficient volume to pay for obligations. Liquidity risk is a risk caused by the fact that the bank may be insufficiently liquid or too liquid. Insufficient liquidity risk is the risk that the bank will not be able to fulfill its obligations in a timely manner or this will require the sale of certain bank assets on unfavorable terms. The risk of excess liquidity is the risk of loss of bank income due to an excess of highly liquid assets and, as a consequence, unjustified financing of low-yielding assets using paid resources for the bank.
The main risk management tools (techniques) include:
Using the principle of weighted risks;
Carrying out a systematic analysis of the financial condition of bank clients, their solvency and creditworthiness, applying the principle of risk sharing, refinancing loans;
Carrying out a diversification policy (wide redistribution of loans in small amounts provided to a large number of clients, while maintaining the total volume of bank operations;
Loan and deposit insurance;
Application of collateral;
Application of real personal and “imaginary” guarantees, hedging of currency transactions, increasing the range of transactions (diversification of activities).
The ultimate goal of the liquidity management system is to ensure the balance of cash flows while achieving the highest possible level of profitability.
Thus, the tools for constructing a liquidity management mechanism based on an assessment of the bank’s dynamic liquidity should be the methodological apparatus of cash flow forecasting and crisis modeling, mathematical methods that allow obtaining an objective assessment of the future state of the bank’s liquidity, as well as the corresponding information infrastructure of the bank, integrated into the overall system assessment of banking risks and allowing in real time to accumulate all the information necessary for analysis and forecasting of liquidity and promptly use the obtained forecasting results.
It is necessary to briefly consider the breakdown of income items attributed to certain types of transactions. Income from foreign currency accounts clients include commissions for issuing transaction passports, as well as a commission for cashing out foreign currency (since maintaining a clients’ foreign currency account consists of commissions for each transaction, which relate to different types of foreign exchange transactions). This constitutes the main income from this operation. To income from placement of funds include: interest on loans issued (short-term, long-term), deposits placed; placement of funds in foreign currency securities and income from them. To income from international payments include: commission for transfers, collection of payment documents in foreign currency, opening and issuance of letters of credit. Income from conversion operations includes:
Income from an open currency position;
Income from operations on the MICEX on futures and forward contracts.
To income from non-trading operations include: commission charged to clients for servicing plastic cards, income from the purchase and sale of cash foreign currency.
However, it is possible to evaluate the bank’s foreign exchange transactions not only from the point of view of income and expenses, but also to analyze the structure of the bank’s personnel, as well as to carry out relative timing of the work process, and take into account how the payroll fund is distributed across the main departments. If the table for analyzing the profitability of foreign exchange transactions is correlated with the turnover for these types of operations, and all analytical calculations are grouped for clarity into one table and the final results are expressed as a percentage, then the following table will be obtained, which clearly expresses the value for the bank of the main foreign exchange transactions (Table 2.3 .3).
All calculations are based on data from the Federal Depository
bank for the first quarter of 1998. For 100% in table. 2.3.3 takes the profitability of the foreign exchange department in the first quarter of 1998. From here it is necessary to explain that this structure of foreign exchange operations is still individual in percentage terms for a given bank. Although the general trend in the importance of the above types of foreign exchange transactions, the structure of foreign exchange transactions remains the same in all banks. That is The main operations in terms of profitability, labor intensity, and total costs are:
1) attraction and placement of funds that the bank has at its disposal in a given period;
2) conversion operations;
3) non-trading operations.
2.4. Currency risks and methods of their regulation
Currency risk, or exchange rate risk, associated with the internationalization of the banking market, the creation of transnational (joint) ventures and banking institutions and the diversification of their activities and represents the possibility of monetary losses as a result of exchange rate fluctuations.
International banking covers:
currency transactions;
foreign lending;
investment activities;
international payments;
international payments;
foreign trade financing;
insurance of currency and credit risks;
international guarantees.
Foreign exchange markets exist to service financial transactions between countries that need to settle trade transactions.
Its participants are market makers, banks, industrial and insurance companies, investment funds, private clients, central banks, and brokers. Market makers quote exchange rates for all other market participants on a regular basis. Banks quote currencies for their clients, but not for other banks. Industrial, insurance companies, investment funds carry out their own foreign exchange transactions and hedging operations through the above-mentioned counterparties. Private clients diversify their investments into different currencies to minimize risks and maximize returns. Central banks are involved in foreign exchange regulation, supervision and foreign exchange intervention. Brokers are engaged in intermediary activities between banks, both national and foreign.
THE CURRENCY MARKET is not only a relationship between banks and their clients. The main characteristic feature of the foreign exchange market is that on it monetary units confront each other only in the form of entries in correspondent accounts. The foreign exchange market is predominantly an interbank market, since it is during interbank transactions that the exchange rate is directly formed. Operations are carried out using various means of communication and communication.
Functions of the foreign exchange market:
Servicing the international circulation of goods, services and capital;
Formation of the exchange rate under the influence of supply and demand;
Mechanism for protection against currency risks and the application of speculative capital;
An instrument of the state for monetary and economic policy purposes.
To serve the foreign exchange market, the concept is introduced exchange rate- the value of one currency expressed in a certain amount of another. To express it accurately, direct and indirect quotes are used.
At direct quotation the variable number of units of national currency expresses the value of foreign currency.
Example: Switzerland: 100 DEM = 85.20 CHF
1 USD == 1.4750 CHF.
At indirect quotation the variable number of units of foreign currency expresses the value of the national currency:
Example: UK: IGBP = 1.4900 USD
1 GBP = 2.5600 DEM.
In this case, the transaction currency is always foreign currency, and the estimated currency is the country’s currency.
Currency quotation for commercial and industrial clients who are interested in the quotation of foreign currencies in relation to the national one is based on the cross rate. Cross course- a relationship between two currencies that results in relation to a third currency (usually the US dollar).
Conversion transactions are associated with the emergence of currency risk, which can lead banks to both additional income and losses.
For its part, currency risks are structured as follows: commercial, conversion, translation, forfeiting risks (Fig. 2.4.1 and Fig. 2.4.2).
Commercial risks are associated with the reluctance or inability of the debtor (guarantor) to pay off his obligations.
Conversion risks- these are the risks of currency losses for specific transactions. These risks are in turn divided into: economic risk, translation risk, transaction risk.
Economic risk for a firm is that the value of its assets and liabilities may change up or down (in national currency) due to future changes in the exchange rate. 
For a bank, investing in foreign assets will affect the size of the future flow of payments denominated in domestic currency. In addition, the very size of payments to be repaid on these loans will change when converting the value of the foreign currency of the loan into the equivalent in national currency.
Translation risk is associated with differences in the accounting of assets and liabilities in foreign currency. If the currency in which these assets are denominated falls, the value of the assets falls: as the value of assets decreases, the size of the share capital of the company or bank falls. More important from an economic point of view is transaction risk, which considers the impact of changes in exchange rates on the future flow of payments, and therefore on the future profitability of the firm or bank.
Transaction risk arises from the uncertainty of the local currency value of a foreign exchange transaction in the future. Changes and profitability of a firm mean a change in its creditworthiness and therefore it is very important for the bank to be aware of the clients' foreign exchange transactions. In an environment of high instability of exchange rates, one of the ways to protect against currency risks is to choose the contract currency that is most acceptable to counterparties. For the exporter and lender, it is preferable to use a relatively more stable currency. The choice of currency can have a significant impact on the efficiency of trading and credit operations.
When choosing a contract currency, the following factors must be taken into account: forecast of trends in the exchange rate of a given currency in the period between the moment of conclusion of the contract and the timing of payment obligations; the nature of the goods and services sold; traditions established in the commodity market; form of trade organization (one-time transaction, long-term contract, intergovernmental agreement).
Currency conversion risk can be reduced by also applying protective clauses, gold clauses, and currency clauses.
Protective clauses- contractual terms included by agreement of the parties in interstate economic agreements, providing for the possibility of changing or revising the original terms of the contract in the process of its execution.
Golden clause acquired importance during and after the First World War in connection with the abolition of the gold standard in some countries and its virtual disappearance in others. The currencies of these countries began to depreciate both in relation to gold and in relation to the currencies of other countries in which the gold standard continued to function. The reservations were based on the gold parity of currencies, which is the ratio of their gold content. Reservations based on parity were valid both in conditions of free exchange of monetary units for gold, and under reduced (gold - motto and gold - dollar) standards. Gold clauses were widely used as long as the governments of capitalist countries took measures to maintain the market price of gold at the official level. The collapse of the gold pool in 1868 created a double market for gold, making the official price of gold unrealistic and ending the use of the gold clause.
Currency clause- this is the inclusion in a credit or commercial contract of a contractual condition, according to which the amount of payment of the contractual condition is made dependent on changes in the exchange rate
the relationship between the currency of the price of the product (loan currency) and another, more stable currency (reservations). The establishment of different currencies of price and payment in a contract is in fact the simplest form of a currency clause. In this case, the price currency is chosen to be a more stable currency. In the case of a regular currency clause, the amount to be paid is made dependent on the change in the exchange rate of the currency of the clause in relation to the currency of the price. In both cases, the payment amount will change to the same extent as the exchange rate of the reservation currency will change. For example, the price of goods under the contract is 1 million francs. francs The currency of the reservation is the US dollar. The dollar to franc exchange rate on the date of conclusion of the contract is 10.00 francs, then the amount to be paid will have to increase by 10% and amount to 1.1 million francs, i.e. per 100 thousand francs. more. A currency clause based on a market rate provides for determining the relationship between currencies based on the current quote on the foreign exchange markets. The difference between the seller's and buyer's rates is margin- is a source of income for the bank, through which it covers the costs of the transaction and, to a certain extent, serves to insure currency risk.
For example:
1. New York to London (direct quote);
1 f.st. - $1.6427 - buyer's rate
1 f.st. - $1.6437 - seller's rate.
A bank in New York seeks to sell pounds sterling after receiving
this is more than the national currency (1.6437), and when buying them, you pay less (1.6427).
2. New York at Frankfurt am Main (indirect quotation);
1 dollar - 1.7973 DM - seller's rate
1 dollar - 1.7983 DM - buyer's rate.
A bank in New York, selling stamps, wants to pay fewer stamps for each dollar (1.7973) and receive more stamps upon purchase (1.7983). However, since the exchange rates of individual currencies often experience acute short-term fluctuations, tying the currency clause to any one currency cannot satisfactorily ensure the interests of both exporters and importers. These shortcomings were overcome with the development multi-currency clause, which provides for the recalculation of a monetary liability depending on changes in the exchange rate
the relationship between the payment currency and the basket of currencies selected by agreement of the parties.
The use of a weighted average exchange rate of the payment currency in relation to a set of other currencies reduces the likelihood of sudden changes in payment amounts. Including currencies with different degrees of stability in the basket helps to ensure the interests of both counterparties. The compilation of the basket should be based on an analysis of the past dynamics of the exchange rates of the relevant currencies, their current state and prospects for the period coinciding with the term of the contract. In addition to multi-currency security clauses, there are a number of clauses that are similar to them in their economic content. Thus, an action similar to a multi-currency clause with a corresponding basket of currencies will have concluding an export contract with the condition of payment in several currencies of an agreed set. For example, maybe The contract amount was agreed to be 60% in US dollars and 40% in German marks.
Broadcast(accounting) risks arise when revaluing the assets and liabilities of the balance sheets and profit and loss accounts of foreign branches of clients and counterparties. These risks, in turn, depend on the choice of conversion currency, its stability and a number of other factors (see Fig. 17.2). Recalculation can be carried out using the translation method (at the current rate on the date of recalculation) or using the historical method (at the rate on the date of a specific transaction). Some banks take into account all current transactions at the current rate, and long-term ones at the historical rate; others analyze the level of risk of financial transactions at the current exchange rate, and others at the historical rate; still others choose one of two accounting methods and use it to control the entire range of their risky transactions.
Strategically, protection against currency risk is closely is associated with an active pricing policy, types and costs of insurance, the degree of reliability of insurance companies of both the bank itself and its counterparties and clients.
In addition, almost all large banks are trying to form portfolio of its foreign exchange transactions, balancing assets and liabilities by type of currency and maturity. Basically everything external methods Currency risk management is focused on their diversification. For this purpose, the most widely used are forward currency transactions such as forwards, futures, options(both in interbank markets and on exchanges). Currency is sold on a spot basis (with immediate or two-day settlement), swap (spot/forward, spot between different banks) or forward (outright between the bank and the client).
Risks of forfeiting arise when the forfeiter (often a bank) assumes all the risks of the exporter without recourse. But at the same time forfeiting(commercial risk refinancing method) has its advantages, with the help of which the level of risk can be reduced by:
Simplification of balance sheet relationships of possible liabilities;
Improving (at least temporarily) the liquidity situation, which makes it possible to further strengthen financial stability;
Reducing the likelihood and possibility of losses by insuring possible difficulties that almost inevitably arise during the period of presentation of previously insured claims;
Reduction or even absence of risks associated with fluctuations in interest rates;
A sharp reduction in the level of risks associated with exchange rate fluctuations and changes in the financial stability of the debtor;
Absence of risks and costs associated with the activities of credit
authorities for collecting money on bills of exchange and other payment documents.
But, naturally, forfeiting cannot be used always and everywhere. This is one way to reduce risks.
Currently, the Central Bank of the Russian Federation regularly publishes the so-called "currency basket"- a method of measuring the weighted average exchange rate of the ruble against a certain set of other currencies.
The most common methods of insuring currency risks are
hedging, those. creation of a compensating currency position for each risky transaction. In other words, compensation occurs
one currency risk - profit or loss - another corresponding risk;
currency swap, which has two varieties. The first is reminiscent of parallel loans, when two parties in two different countries provide loans of different sizes with the same terms and methods of repayment, but denominated in different currencies. The second option is simply an agreement between two banks to buy or sell currency at the spot rate and reverse the transaction at a predetermined date (in the future) at a certain spot rate. Unlike parallel loans, swaps do not include interest payments;
mutual offset of risks on assets and liabilities, the so-called “matching” method, where by subtracting currency receipts from the value
its outflow, the bank management has the opportunity to influence their size.
Other transnational (joint) banks (SBs) use the netting method(netting), which is expressed in the maximum reduction of foreign exchange transactions through their consolidation. For this purpose, coordination
The activities of all divisions of a banking institution must be at a high level.
Hedging involves the creation of counterclaims and obligations in foreign currency. Most common type hedging - concluding forward currency transactions. For example, an English trading firm expecting a US dollar receipt in 6 months' time would hedge by selling those future receipts into pounds sterling at the 6-month forward rate. By entering into a forward foreign exchange transaction, a firm creates US dollar liabilities to balance its existing dollar claims. If the dollar exchange rate declines against the pound sterling, losses on the trading contract will be compensated by profits on the forward currency transaction.
The basis for spot transactions, which have an exceptional impact on the currency position, are correspondent relationships between banks. Spot foreign exchange transactions account for approximately 90% of all foreign exchange transactions. The main goals of their implementation are:
Meeting the needs of bank clients in foreign currency;
Transfer of funds from one currency to another;
Carrying out speculative operations.
Banks use spot transactions to maintain minimum required working balances with foreign banks in Nostro accounts to reduce surpluses in one currency and cover requirements for another currency. With this, banks regulate their foreign exchange position in order to avoid the formation of uncovered account balances. Despite the short delivery time of foreign currency, counterparties bear the currency risk for this transaction, since under the conditions of “floating” exchange rates the rate can change within two business days. Conducting foreign exchange transactions and minimizing risks requires certain preparation. At the preparatory stage, an analysis of the state of foreign exchange markets is carried out, trends in the movement of exchange rates of various currencies are identified, and the reasons for their changes are studied. Based on this information, dealers, taking into account their existing currency position, use computer technology to determine the average exchange rate of the national currency against foreign currency. The analysis carried out makes it possible to develop the direction of foreign exchange transactions, i.e. secure a long or short position in the specific currency in which they transact. It should be noted that in large banks, special groups of economists and analysts analyze the position of currencies in the markets, and dealers, based on their information, independently choose the direction of conducting foreign exchange transactions. In smaller banks, the analyst functions are performed by the dealers themselves; They directly carry out currency transactions: using communication means (telephone, telex) they negotiate the purchase and sale of currencies and conclude transactions. The procedure for concluding a transaction includes: selection of exchanged currencies; fixation of rates; establishing the transaction amount;
value transfer of funds; indication of the currency delivery address.
At the final stage, the transaction is carried out on the accounts and its documentary confirmation is carried out.
During transactions "spot" The day on which settlements for a particular currency transaction are completed is called the “value date” and is used as protection against risk. International payments cannot be made on a Sunday, holiday or non-working day. That is, calculations must be made on a working day in both countries (Table 17.10).
In Russian banks, the open currency position is determined separately for each foreign currency. For this purpose, the currency positions of the authorized bank are translated into the ruble equivalent at the official ruble exchange rates in effect on the reporting date, which are established by the Central Bank of the Russian Federation. The passive balance is indicated with a minus sign, indicating a short open currency position; The active balance is indicated with a plus sign, indicating a long open currency position. Moreover, in the case of the formation of the authorized capital of an authorized bank in foreign currency, when calculating the open currency position for a given foreign currency, the amount of the passive balance increases by the corresponding amount.
To calculate an open currency position in rubles, the difference between the absolute value of the sum of all long open currency positions in rubles and the absolute value of the sum of all short open currency positions in rubles is determined.
The total value of all long and the total value of all short open currency positions in foreign currencies and rubles must be equal.
In order to limit the currency risk of authorized banks Central Bank of the Russian Federation The following limits of open currency positions are established:
At the end of each operating day, the total value of all long (short) open currency positions should not exceed 30% of the authorized bank’s own funds (capital);
As of the end of each operating day, long (short) open currency positions in certain foreign currencies and Russian rubles should not exceed 15% of the authorized bank’s own funds (capital).
Authorized banks with branches independently set sublimits for open currency positions of the head bank and branches. At the same time, the share distribution of sublimits is carried out by them within the limits provided for by the authorized bank. At the end of each operating day, open currency [positions separately for the head bank and branches of the authorized bank must not exceed the sublimits established by it during the share distribution, and in a consolidated form must be within the limits established as a whole for the authorized bank. Redistribution by the authorized bank sublimits on open currency positions of its head bank and branches can be made by the authorized bank at the beginning of each reporting month.
Financial instruments as a method of insurance
currency risks
Methods of insuring currency risks are financial transactions that allow either to completely or partially avoid the risk of losses arising in connection with the expected change in the exchange rate, or to obtain speculative profit based on on such a change.
Methods of insuring currency risks include:
Structural balancing (assets and liabilities, accounts payable and receivable);
Changing the payment term;
Forward transactions;
Operations such as "swap";
Financial futures;
Lending and investing in foreign currency;
Restructuring of foreign currency debt;
Parallel loans;
Discounting claims in foreign currency;
"currency baskets";
Making payments by branches in a “growing” currency;
Self-insurance.
It should be borne in mind that the methods are: changing the payment term; forward transactions; “swap” type operations; option transactions; Financial futures and discounting of claims in foreign currency are used for short-term hedging, while methods of lending and investing in foreign currency; restructuring of foreign currency debt; parallel loans; making payments to branches in a “growing” currency; self-insurance are used for long-term risk insurance. Methods of structural balancing (assets and liabilities, accounts payable and receivable) and “currency baskets” can be successfully used in all cases. It should be noted that the methods of parallel loans and making payments by branches in a “growing” currency are, in principle, available only to those companies or banks. who have
foreign branches. Some of these methods are difficult to apply.
The essence of the main hedging methods is to carry out foreign exchange transactions before an unfavorable change in the exchange rate occurs, or to compensate for losses from such a change through parallel transactions with a currency whose rate changes in the opposite direction.
Structural balancing is the desire to maintain a structure of assets and liabilities that will allow losses from changes in the exchange rate to be covered by profits received from the same changes in other balance sheet items. In other words, such tactics boil down to the desire to have the maximum possible number of “closed” positions, thus minimizing currency risks. But since it is not always possible or reasonable to have all positions “closed,” you should be prepared for immediate structural balancing actions. For example, if a company or bank expects significant changes in exchange rates as a result of ruble devaluation, then it should immediately convert available cash into the payment currency. In relation to the ruble, this, naturally, can be done only if there is such a right (expressed by entries in an off-balance sheet account or in some other way) or after the creation of a domestic foreign exchange market. If we talk about the relationship between various foreign currencies, then in such a situation, in addition to conversion and a falling currency into a more reliable one, it is possible to carry out, say, the replacement of securities denominated in a “sick” currency with more reliable stock values.
One of the simplest and at the same time most common balancing methods is reconciliation of currency flows reflecting income and expenses. In other words, every time concluding a contract providing for the receipt or, conversely, payment of foreign currency, an enterprise or bank should strive to choose the currency that will help it close, in whole or in part, the existing “open” currency positions.
Change payment deadline, usually called the “leads and lags” tactic, is the manipulation of the timing of settlements, used in anticipation of sharp changes in the exchange rates of the price or payment currency. The most commonly used forms of such tactics include: early payment for goods and services (in case of expected depreciation, i.e., depreciation); acceleration or deceleration of repatriation of profits, repayment of loan principal and payment of interest and dividends; regulation by the recipient of foreign currency funds of the timing of conversion of proceeds into national currency, etc. The use of this tactic allows you to close short positions in foreign currency before the exchange rate rises and, accordingly, long positions before it falls. The possibility of using such a method, however, is largely determined by the financial conditions of foreign trade contracts. In other words, contracts should provide in advance for the possibility of early payment and clearly stipulate the amount of penalties for timely payment. In the latter case, a delay in payment due to an expected change in the exchange rate will be justified only if the savings resulting from payment at the new rate exceed the amount of the accrued penalty.
Since 1975, banks have been used in mainly new methods of regulating currency risks. For this purpose, three new instruments were created: swaps, derivatives contracts for financial instruments (forwards and futures) and options, which we will consider in detail.
Forward operations to insure currency risks are used to avoid risks in foreign currency purchase and sale transactions. A forward foreign exchange contract is an irrevocable and binding contract between a bank and its client to buy or sell a specified quantity of a specified foreign currency at an exchange rate fixed at the time the contract is entered into, for execution (i.e. delivery of the currency and its payment) at a future time, specified in the contract. This time represents a specific date, or a period between two specific dates.
An English exporter issues an invoice under a foreign trade contract, which provides for payment 6 months after shipment of the goods. Moreover, if the exporter does not enter into a forward contract, he receives the currency within the period specified in the spot contract and sells the currency to his bank at the current spot price against GBP. However, the spot spot has changed since the contract was concluded and now, depending on the market situation, the exporter will receive more or less in exchange for foreign currency. Therefore, the exporter bears currency risk. But, if the exporter enters into a forward contract, then the bank agrees to buy foreign currency from the exporter for GBP in 6 months. The bank agrees to do this at a fixed rate, so there is no risk for the exporter and he sells the currency to his bank at the current forward rate against GBP. So, for example, in a spot operation, the amount of coverage for 180 days at the spot rate is 1.7400, and taking into account the premium on the forward contract (premium for 180 days 171 points -0.0171) at the forward rate - 1.7571, provided that The forward rate is higher than the spot rate.
Features of forward transactions include:
The existence of a time interval between the moment of conclusion and execution of the transaction;
The exchange rate is determined at the time the transaction is concluded. Exchange quotation bulletins publish the rate for spot transactions and premiums or discounts to determine the rate for forward transactions for different periods, usually 1, 3 or 6 months. If a currency in a forward transaction is quoted at a higher price than for immediate delivery on spot terms, then it is quoted at a premium. A discount or discount means the opposite. A fixed-term rate that takes into account a premium or discount is called an outright rate. With a premium, the currency is for a period more expensive than the cash rate, with a discount it is cheaper. Having the value of the premium and discount, the outright rate is calculated.
A forward foreign exchange contract can be either fixed or optional.
Fixed forward foreign exchange outright contract is a contract that must be performed on a specific date in the future. For example, a two-month forward fixed contract entered into on September 1st must be executed on November 1st, i.e. in two months.
According to by letter of the Central Bank of the Russian Federation dated December 23, 1996 No. 382 a settlement forward is defined as a combination of two transactions - the purchase and sale of foreign currency for a period with a pre-fixed rate and the simultaneous acceptance of an obligation to sell and buy the same amount of foreign currency on the date of execution of the forward transaction at a rate that is subject to determination in a future period (for example, it will be fixed on the MICEX on a predetermined day). These contracts do not actually involve the conduct of foreign exchange transactions, since their conclusion does not initially involve the delivery of the underlying foreign currency asset. Settlements under these contracts are carried out exclusively in rubles in an amount that represents the difference between the value of the underlying currency asset at the initially fixed rate and its value at the rate determined in the future period. However, due to the fact that by concluding such contracts, banks assume exchange rate risks, these contracts are taken into account when calculating the open currency position. According to letter of the Central Bank of the Russian Federation dated December 23, 1996 No. 382 An open currency position at the time of concluding a contract is created by a forward transaction for the purchase and sale of foreign currency with a fixed rate. The forward transaction is accounted for in off-balance sheet accounts in accordance with Instructions of the Central Bank of the Russian Federation dated June 10, 1996 No. 290. At the same time, the obligation for a counter transaction on the date of conclusion of the derivatives contract does not have independent significance from the standpoint of determining the open currency position of the counterparties. Its functional role in the settlement forward is reduced to the formation of a mechanism for playing on exchange rate fluctuations, which is, in essence, a settlement forward. At the same time, when executed, the counter transaction affects the size of the open currency position, like any conversion operation.
The exchange rate for futures transactions differs from the corresponding rate for cash transactions. When the rate for a futures transaction is higher than the cash currency rate, the corresponding premium to the cash rate is called a bonus. If the rate for a futures transaction is lower, then the discount from the cash rate is called discount.
The option forward contract, at the client's option, can be
done either:
At any time, from the date of conclusion of the contract to the specific date of its implementation;
During the period between two specific dates.
The purpose of an options contract is to avoid the need to renew a forward foreign exchange contract and extend it over several days, as this can be quite expensive in terms of costs per day.
A currency option gives the buyer the right (not the obligation) to buy
or sell: at a certain, pre-agreed date in the future, a certain amount of currency in exchange for another. An option can be compared to insurance - it is used only in unfavorable circumstances.
Unlike a forward transaction, an option is used to protect against high-cost risks with an imprecise basis for calculation of a standard amount, value date, up to 2 years for major currencies only.
Depending on which of the participants and how has the right to change the terms of the transaction, there are: a buyer's option or a transaction with a preliminary premium, a seller's option or a transaction with a reverse premium, a temporary option.
In the case of a call option or a pre-premium transaction, the option holder has the right to receive the currency on a specified date By stipulated rate. The buyer reserves the right to refuse to accept currency by paying the seller a premium for this as compensation. In a put option or reverse premium transaction, the option holder can deliver the currency on a specified date at a specified rate. The right to refuse the transaction belongs to the seller, and he pays a premium to the buyer as compensation.
Variety option transactions is a time option that was historically preceded by a rack transaction with the purpose of simultaneously conducting speculative transactions in anticipation of an increase and decrease in the exchange rate of a currency. Such an option provided by the bank to the client is an option (from English - the right or subject of choice) in relation to the period of time when the currency exhibition will be carried out, and such a transaction must be executed before the agreed date. For this operation, the premium payer has the right to demand execution of the transaction at any time during the option period at a previously fixed rate. Thus, the participant in the transaction pays a premium for the right to choose the most favorable current exchange rate for the conversion of the currency received as a result of the option transaction. In this case, the premium does not play the role of compensation, since during the option period it is impossible to refuse to execute the transaction. When executing a transaction, counterparties specify which of them will act as a seller and which will act as a buyer. Then one of them, having paid a premium to the other, either buys the currency or sells it. This transaction is more profitable for the participants, the greater the fluctuations in the exchange rate.
So, currency option are not the same thing as forward foreign exchange option contracts. Unlike a forward foreign exchange contract, an option does not have to be exercised. Instead, when the currency option's exercise date arrives, the owner can either exercise the right to exercise the option or allow it to expire by avoiding the transaction, i.e. simply by refusing the option.
According to Instruction of the Central Bank of the Russian Federation dated May 22, 1996 No. 42“tomorrow” and “spot” transactions refer to transactions with immediate delivery of funds. These transactions are carried out according to the bank's balance sheet on the date of delivery of funds for them. The inclusion of these transactions in the reporting of open currency positions is carried out in accordance with off-system accounting data (depending on the internal accounting rules in force in the bank) at the time of the transaction. In reports on open currency positions, “tomorrow” and “spot” transactions are reflected in the “Balance” column.
A “swap” transaction consists of two transactions:
Cash transaction (with immediate delivery of funds), which is taken into account off-system until the execution date (valuation) and in the balance sheet on the corresponding value date;
A forward transaction, which until the moment of movement of funds is accounted for on off-balance sheet accounts, and on the date of execution - in the balance sheet.
Classic currency swap transaction i.e., a “spot” + “forward” transaction is a foreign exchange transaction that combines the purchase or sale of a currency on the terms of a cash “slot” transaction with the simultaneous sale or purchase of the same currency for a period at the forward rate, adjusted to take into account the premium or discount depending on exchange rate movements. Thus, a swap transaction is a combination of a spot transaction and a reverse forward transaction, with both transactions executed with the same counterparty at the same time; both transactions have the same transaction currency; For both transactions, the transaction currency amount is the same.
When comparing swap transactions and transactions with a temporary option, it should be noted that transactions with a temporary option provide complete protection against currency risks, while swap transactions only partially insure against them. This is due to the fact that when conducting swap transactions, a currency risk arises due to a change in the opposite direction of the discount or premium in the period between the day the transaction is concluded and the day the currency is delivered.
Swap operation with interest rates involves an agreement between two parties on mutual interest payments for a certain amount in one currency, for example, when one party pays the other interest at the floating interbank interbank rate LIBOR, and receives interest at a fixed rate. Operation "swap" from currencies oi means an agreement to exchange fixed amounts of currencies, i.e. both parties exchange loan obligations. The last two operations can be combined, i.e. represent “swap” with currency and interest rates at the same time. This means that one party pays principal in one currency and interest at a floating rate of LIBOR in exchange for receiving the equivalent amount in another currency and interest at a fixed rate.
Interest rates on loans provided on the European market may be based on the opening bank's interest rate, or LIBOR.
LIBOR is the rate for placing three-month deposits on the London interbank market. The main interest rates for large banks on the London interbank market are announced every day at 11.00 local time 2 working days before funds are disbursed. LIBOR rates are fixed by the British Bankers Association based on quotes from 16 international banks. A margin is added to it, depending on the financial condition of the borrower, market situation, and loan repayment period.
LIBID is the rate for attracting deposits on the London interbank market. This is the prime rate of interest on deposits of London prime banks for banks of the same class. LIBID rates are not fixed; they are 1/8% lower than LIBOR.
A swap can be used to prolong a forward contract, to cover currency risk by carrying out spot and swap transactions as an investment of liquid funds.
A transaction in which a foreign currency is sold on a spot basis with its simultaneous purchase on a forward basis is called a report. A transaction where there is a purchase of foreign currency on a “spot” basis and its simultaneous sale on a “forward” basis - deport.
Swap transactions are carried out by agreement of two banks, usually for a period of one day to 6 months. These transactions can be carried out between commercial banks; commercial and central banks and the central banks themselves. In the latter case, they represent mutual lending agreements in national currencies. Since 1969, a multilateral system of mutual currency exchange has been created through the Bank for International Settlements in Basel based on the use of swap operations.
Sometimes swap operations are carried out with gold. Their goal is to retain ownership of it and at the same time acquire the necessary foreign brand for a period.
Swap transactions are convenient for banks: they do not create an open position (a purchase is covered by a sale), and they temporarily provide the necessary currency without the risk associated with changes in its exchange rate. Swap operations are used for:
Conducting commercial transactions: the bank sells foreign currency on the terms of immediate delivery and at the same time buys it for a period. For example, a commercial bank, having excess dollars for a period of 6 months, sells them into national currency on a spot basis. At the same time, taking into account the need for dollars in 6 months, the bank buys them at the forward rate. In this case, a loss on the exchange rate difference is possible, but in the end the bank makes a profit by providing national currency on credit;
Acquisition by the bank of the necessary currency without currency risk (based on coverage by a counter-transaction) to ensure international settlements and diversify foreign exchange reserves. Currency futures are also used to insure currency risk.
Futures at exchange rates- These are contracts to buy or sell a certain amount of currency at some date in the future. In this they are similar to forward foreign exchange contracts, but, unlike forward contracts, they:
Very easy to cancel;
They are concluded for a fixed amount,
Sold on official exchanges (for example, the London International Financial Futures Exchange - LIFFE was opened in 1992);
Provides that futures traders must pay “cash margin” (i.e., pay “money in advance”) to exchange dealers to ensure that futures obligations are met.
Exchange rate futures traders on LIFFE are called dealers (usually banks). They operate with large sums of money and are looking for a way to avoid currency risks.
Conclusions on the second chapter:
The economic foundations of foreign exchange transactions and the problems of their regulation are considered. As for the experience of currency regulation, we can confidently note that the current system of currency regulation and currency control is still very imperfect in its level. To form a complete working system, it is necessary to complete a number of strategic tasks. This includes the formation of a clear legislative framework for currency regulation, a clear distribution of responsibilities of all currency control bodies and agents, and improved information support for the work of currency control bodies and agents, as well as the implementation of centralized investment programs, primarily in the production sector.
With all the significance of these measures in the field of currency regulation, only a fundamental change in the situation, strengthening the economic security of the country, ensuring its worthy place in the world economic system, implementing a decisive structural restructuring of the economy, a major redistribution of resources into the most efficient areas and branches of modern production, creating an adequate financial -technical base can ensure the functioning of a full-scale modern foreign exchange market.
The classification of foreign exchange transactions is considered. In accordance with the law “On Currency Regulation and Currency Control,” all currency transactions are divided into: current and transactions related to the movement of capital. Currently, current foreign exchange transactions have acquired wider significance. In this case, deferred payment is provided for a minimum period. The limited range of foreign exchange transactions related to the movement of capital is justified by the greater risks involved in their implementation, as well as more complex registration (obtaining permission from the Central Bank of the Russian Federation for these transactions). It is necessary to clarify that all foreign exchange transactions are closely interrelated, so it is very difficult to clearly classify all transactions with foreign currency. Moreover, operations can be classified into several main types of foreign exchange transactions.
As a result of the internationalization of the banking market, the creation of transnational enterprises and banking institutions and the diversification of their activities, banks are constantly exposed to currency risks, which represent the possibility of monetary losses as a result of exchange rate fluctuations.
Ultimately, the new financial instruments considered, which are forward contracts, swaps, options and futures, allow you, first of all, to protect yourself from currency risks, as well as to finance your activities at lower costs, and to have certain types of resources that would otherwise be unavailable. Finally, these are instruments of speculation. In addition, financial instruments are a powerful factor in global financial integration: they establish a direct link between the international market and the domestic markets of various countries. This integration provides many benefits, but does not come without inconveniences and risks. This explains the fact that monetary authorities and governments of leading industrialized countries are concerned about ensuring certain regulation of international markets and foreign exchange risks.
In most cases, the loan is repaid in a lump sum and the loan amount with accrued interest is determined by the formula:
D – loan amount;
s – annual interest rate;
n – number of years.
If interest rates change during the deposit period, the amount of accrued interest can be determined as follows:
N – number of intervals.
Interest for the accrual period is accrued at a constant compound rate s n, the deposit amount will be:
When repaying a loan in installments, the current value of the debt amount will decrease after the next payment and, therefore, the amount of interest accrued for the next period will decrease. The total loan repayment amount is:
,
k – the number of payments to repay the loan;
s – annual interest rate.
Loans can be repaid in equal term payments, including repayment of the principal amount of the loan and payment of the corresponding amount of interest.
,
P – amount of payments.
When issuing, the credit institution may deduct a commission. In this case, the formulas described above have the following form:
Determining the profitability of foreign exchange transactions of a credit organization
As practice shows, transactions with foreign currency in the foreign and domestic markets are profitable. The analysis should separately determine the amount of profit from transactions with payment documents in foreign currency; profit from transactions with securities in foreign currency; profit from providing services to correspondent banks. In the process of analysis, the share of “working” correspondent accounts and expenses on them, the share of “non-working” correspondent accounts and losses on them are calculated. The amount of fines paid by the authorized bank due to its failure to fulfill contractual terms on foreign exchange transactions is assessed separately; impact of exchange rate differences on profit.
Determining the profitability of these operations using the simple interest formula in the form of an annual rate is not possible. Therefore, it is necessary to determine the profitability of selling and the profitability of buying foreign currency separately.
The amount of income from the purchase of foreign currency can be determined on the basis of the register of the purchased currency or the account card for the purchase and sale of foreign currency as follows:
V – volume of purchase;
To the Central Bank – ruble exchange rate against foreign currency;
K pok – purchase rate.
The profitability of foreign currency purchase transactions in the form of an annual rate is determined by:
.
Having information about purchase rates, you can determine the amount of income from these operations:
.
In a similar way, you can determine the profitability of a foreign currency sale operation:
Therefore, income from the sale of foreign currency will look like:
.
Let us consider the features of analyzing the profitability of purchase and sale transactions of foreign currency in exchange trading conditions.
As is known, exchange rates of foreign currency against the ruble are set on the exchange in the context of transactions: today – settlement period no later than the day the transaction is concluded, tomorrow – settlement period no later than the next business day, spot – settlement period no later than the second business day, spot next – settlement deadline no later than the third business day after the conclusion of the transaction. These rates are fixed when equality between supply and demand is achieved in the context of the specified types of transactions.
When concluding a transaction on the stock exchange to purchase foreign currency on “tomorrow” or “spot” terms, the credit institution on the day of conclusion can only determine the expected profitability or unprofitability of this operation. Since the “tomorrow” (and “spot”) rate is usually higher than the Central Bank rate on the day the transaction is concluded, it will be possible to determine the amount of the expected loss using off-balance sheet accounting data for these transactions. This value is defined as the difference between the ruble equivalent of the purchased currency, expressed at the Central Bank exchange rate on the day of the transaction, and the ruble coverage required to purchase this currency at the exchange rate of the transaction “tomorrow” (or “spot”):
If the Central Bank exchange rate increases before the settlement date for the concluded transaction, the actual loss on the transaction will be lower than expected. If the Central Bank rate decreases, then the real loss will exceed the expected one:
.
The expected income from the sale of foreign currency on the stock exchange is determined in a similar way:
,
and real profitability
.
The methodology for analyzing the expected and actual profitability (loss) of “spot” transactions will be similar to that described above, with the only difference being that from the date of the transaction to the date of its execution, the Central Bank exchange rate may change twice. If these changes are unidirectional, then this methodology can be applied for the entire period, otherwise calculations must be carried out separately.
Determining the profitability of transactions with securities
Investment operations of a credit institution are associated with long-term investment of funds in production, securities or joint venture rights.
When analyzing profits from investment operations, first of all, it is necessary to determine its share in the total amount of profit and then, as part of investment profits, calculate the profit received from investments in production, securities, and joint activities. When analyzing the profit received from investments in securities, it should be taken into account that the difference between their sale price and purchase price must cover the costs of taxes on transactions with securities and commissions paid to the exchange.
Analysis of transactions with securities is intended to identify the most profitable and promising investments in securities and improve the quality and structure of the credit institution's stock portfolio.
During the analysis, the portfolio is divided into the following parts:
- by type of securities (portfolios of shares, bonds, certificates of deposit and bills);
- according to the purpose of conducting operations with them (controlling management portfolio, non-controlling portfolio, investment, trading portfolios, repo portfolio);
- according to the issuer’s form of ownership (portfolio of government and corporate securities).
The analysis technique depends on:
- on the type of security (share, bond, certificate of deposit, bill);
- on the purpose of the operations (for long-term storage, for resale, etc.);
- on the form of ownership of the issuer (state or corporate);
- on the form of income payment (coupon or zero-coupon);
- on the type of income paid (interest or discount securities);
- based on profitability (fixed and variable income).
Investment portfolio analysis. The purpose of the analysis is to assess the current and real profitability of the portfolio for the year, since a credit institution, investing in the formation of such a portfolio, hopes to receive stable income in the form of dividends over a long period of time.
Current yield analysis is determined by
I - current portfolio return for the year;
D – dividends received over a period of time t ;
P – purchase (nominal) value of shares;
t – the number of days for which dividends are accrued.
To determine the real level of current portfolio yield, it is necessary to adjust this indicator taking into account the percentage of inflation:
Real current portfolio return for the year;
i – annual inflation rate.
If the investment period for which the stock's return is assessed includes the receipt of dividends and ends with the sale, then in this case the total return on the stock for the period should be determined, which is calculated as the ratio of the total return for the period to the purchase price of the stock. In turn, the full income for the year will consist of the current annual income and the increase in the value of shares minus the costs of buying and selling securities:
,
– full income for the year;
S - sale price of shares;
P – purchase price of shares;
WITH - expenses for purchase and sale;
Analysis of the trading portfolio. The profitability of a trading portfolio is influenced by a number of different factors, such as: changes in market prices that affect the increase in the market value of shares, acceleration of portfolio turnover.
,
I m – marginal return of the share, reduced to the annual rate;
And the analysis of the turnover of the trading portfolio of shares is carried out by determining the indicator in days:
– portfolio turnover in days;
– average value for the account 50802 (50902);
– account credit turnover 50802 (50902) for t period of time.
The portfolio turnover rate in days shows how many days on average a security is in the trading portfolio. The higher the turnover rate of securities, the higher the liquidity of the portfolio as a whole. It is advisable to conduct a comparative analysis of the turnover of shares of various issuers, as well as a factor analysis of the turnover rate of the trading portfolio over time. All this will improve the qualitative composition of the trading portfolio and its quantitative characteristics.
Repo Portfolio Analysis . REPO operations occupy an intermediate position between investment operations and lending operations against securities, since one party sells a block of shares to the other with an obligation to buy it back at a pre-agreed price. A repo transaction differs from a lending transaction secured by securities in that ownership of the securities is transferred to the bank until the reverse transaction is executed. Income from a repo transaction is defined as the excess of the sale price of securities (on the reverse part of the transaction) over their purchase price, reduced by the amount of transaction expenses.
The profitability of a repo transaction can be determined using the following formula:
,
t – transaction period in days;
WITH – transaction costs.
The profitability of the transaction for the recipient can be increased by reducing the costs of transferring securities in the case of using a trust repo, but the credit risk also increases significantly.
Analysis of a portfolio of non-government discount bonds . The purpose of forming such a portfolio is to generate income in the form of the difference between the par value and the purchase price (book value) of the bonds at maturity.
The purpose of analyzing such a portfolio is to estimate its yield to maturity:
,
I – yield to maturity;
N
P pog – purchase price of the bond;
C – costs of purchase and sale;
t – the period from the moment of purchase to maturity of the bond.
At the same time, the current investment risk ( R ) is characterized by the ratio of the amount of reduction in the purchase price of a bond in comparison with the market price and its purchase price:
P market – market price of the bond.
V – the amount of the created reserve.
Analysis of transactions with corporate coupon securities . Receipt of coupon income can be carried out either upon redemption of the bond, or during the entire circulation period. In the first case, the purpose of the analysis is to assess their yield to maturity, in the second - to assess their current and total yield.
Interest income is determined:
,
P nom – face value of the bond;
s – annual interest rate;
n – the number of years for which interest is accrued.
If a bond is purchased at a price different from its par value, then its yield is determined by the formula:
,
I – bond yield to maturity;
WITH - expenses.
If a bond is purchased on the secondary market and the purchase and sale agreement specifies the accumulated interest income due to the previous bond holder separately from the purchase price, then the yield of the bond is determined as follows:
,
I r – interest paid when purchasing a bond.
This amount is recorded on the active balance sheet account 61405; after repayment, it is written off as a debit to account 61305.
The assessment of current and total profitability is determined as follows:
If bonds have a fixed coupon
s – fixed annual coupon rate;
I – current profitability.
If bonds have a floating or variable coupon, then the average annual coupon rate is first determined:
,
t – duration of coupon periods in days;
s 1 ,s 2 ,…s n – coupon rate for periods t .
Total profitability is determined by:
The procedure for determining the profitability of a trading portfolio of coupon bonds also depends on the type of bonds: bonds with interest payment at the end of the term, or with periodic interest payment.
Coupon income received when redeeming coupons for the period;
The number of days the bond is on the balance sheet.
The profitability of transactions with a repo portfolio of corporate bonds depends on a number of factors: the purchase price, the sale price, the amount of coupon income paid on the first part of the transaction and received on the second, the period of the transaction.
Analysis of transactions with certificates of deposit . A portfolio of certificates of deposit is formed to receive interest (coupon) income when the certificate is redeemed on time at the interest rate indicated on the form. The amount of interest income received upon redemption of the certificate is determined:
,
Interest income;
Nominal value of the certificate;
Annual interest rate.
Annual yield to maturity
If a certificate of deposit is presented for payment before the maturity date, the credit institution pays the holder the deposit amount and interest at the “on demand” rate.
,
Rate on demand deposits;
The period from issue to maturity;
Total amount of payments.
If the certificate is sold between the dates of issue and redemption, then the amount of accumulated interest income is distributed between the buyer and the seller: the buyer pays the seller, in addition to the face value of the certificate, the amount of income due for the period from the moment of issue to the moment of sale of the certificate.
.
Profitability analysis of transactions with bills of exchange . The information base for analyzing the profitability of transactions with bills of exchange is the balance of balance sheet accounts for the accounting of urgent bills and data on the amounts received upon redemption (sale) of the bill.
If the bill is discounted, then its purchase price is determined as the difference between the par value of the bill and the discount amount:
,
Purchase price;
Denomination of the bill;
The number of days from the date of purchase of the bill to its repayment;
Discount rate.
If a bill of exchange is sold before the maturity date, then the income on it will be divided between the seller and the buyer, taking into account the discount rate and the number of days until the bill's maturity. The profitability of this operation is determined as follows:
,
Number of days until maturity at the time of purchase;
The number of days until maturity at the time of sale.
Analysis of transactions with interest-bearing bills . It is known that the amount of income when repaying a bill is equal to the sum of the face value and accrued interest:
.
If an interest-bearing bill was purchased at a price higher than its face value (with a premium), then the income on the bill is determined as the difference between the amount of interest income received upon redemption of the bill and the amount of interest income paid to the previous owner of the bill. And the yield at maturity has the form:
The number of days from the moment of statement to the moment of repayment;
The number of days from the moment of discharge to the moment of purchase.
If an interest-bearing bill is purchased at a price below par (with a discount), then the full income upon repayment of the bill consists of two components: interest and discount income. The purchase price of such a bill when accounting for it is determined as follows:
Discount (discount) rate;
Interest rate;
The number of days from the moment the bill is issued until maturity.
The full return on repayment of this bill can be determined using the following formula:
.
Since in practice there are numerous cases of abuse of the bill form, for example, the issuance of fictitious bills, an important condition of the analysis is to check the reliability of the bills.
In this way, the profitability of the main types of banking activities and operations performed by credit institutions is determined.
In the process of profit analysis, an assessment is made of not only the profit generation system, but also its use.
Profit received in the reporting period (and partially accumulated in the previous one) is used for:
- payment of taxes;
- payment of dividends to shareholders from participation in share capital;
- contributions to the reserve fund;
- contributions to special purpose funds and other purposes;
- maintenance of non-production facilities;
- contributions to non-state pension funds;
- for various types of voluntary insurance;
- to cover expenses associated with the opening of representative offices by the bank
- and others.
In the process of analysis, it is necessary to determine their amount and share in the total amount of expenses incurred at the expense of net profit; study their dynamics, check the documented validity of these expenses, and establish the reasons for their occurrence.
2.4. Analysis of profitability indicators
Profitability indicators characterize the financial results and efficiency of a credit institution and represent the results of the relationship between profit and the funds used to obtain it.
The profitability of a credit institution should be considered in conjunction with liquidity indicators and the structure of assets and liabilities of the balance sheet. For the successful functioning of a credit institution, it is necessary to ensure an optimal balance of profitability and liquidity, correlated with the risks of banking activities and the quality of the loan portfolio.
Analysis of profitability indicators should be carried out in the following sequence:
- calculation of the actual value of profitability ratios;
- carrying out a comparative assessment of profitability ratios over time;
- identifying the degree of influence of factors on trends in changes in profitability ratios.
To analyze profitability in countries with developed market economies, the DuPont model is used, the essence of which is to determine the main factors influencing the amount of profit per unit of equity capital. In the process of this analysis, a step-by-step decomposition of the basic profitability indicators into its components is carried out; The values of the obtained indicators are compared with the level of their values in other credit institutions, deviations are determined and the reasons are identified.
The DuPont model provides for the analysis of indicators such as return on capital, return on assets, return on assets, asset utilization, and capital multiplier.
Return on capital ratio ( K 1 ) is calculated as the ratio of net profit to equity:
The next profitability indicator is the return on assets ratio ( K 2 ) characterizes the amount of profit received for each ruble of assets:
This indicator characterizes the degree of profitability of all existing assets, an excessively high value of which may indicate a risky policy of a credit institution when placing its assets.
The profitability of working assets is determined by the ratio of net profit to the amount of working assets. In a similar way, the profitability of the largest components (credit transactions, transactions with securities, currency, etc.) of the assets of a credit institution can be determined.
Another important indicator is the net worth multiplier ( K 3 ), which is determined by the ratio of the average value of assets to the average value of equity capital. This indicator shows the structure of sources for the formation of the resource base of a credit organization.
Return on equity ( K 4 ) is determined by the ratio of net income to the average equity capital. This indicator characterizes capital adequacy. This is the most important indicator of profitability. It should be the main focus of the analysis. It measures profitability from the shareholders' perspective.
The amount of income of a credit institution includes interest income, commission income, income from dividends received, from the revaluation of accounts in foreign currency, from transactions for the purchase and sale of securities and precious metals, from positive revaluation of securities and precious metals, from repo transactions, etc. .
Asset utilization ratio ( K 5 ) is determined by the ratio of the amount of income to the amount of assets and characterizes the degree of return on assets:
The next stage of detail when conducting a profitability analysis is to determine the interest margin on loans, margin on securities, currency values, etc. These indicators are determined by the ratio of income from relevant operations to operating assets.
The interest margin is determined by the ratio of net interest income on placement and attraction of funds to the average amount of assets. Net interest income is the difference between interest income and expenses.
The dynamics of this indicator indicate the need to change the interest rate, volume and structure of income-generating assets and liabilities.
The margin on securities is determined by the ratio of net income on securities, debt obligations and bills to the amount of assets. This indicator is intended to determine the profitability of a credit institution's stock portfolio and is calculated by the ratio of the difference in income and expenses on transactions with securities to the average amount of assets.
The margin on foreign currency assets is determined by the ratio of net income from operations in the foreign exchange market and from the revaluation of accounts in foreign currency to the amount of assets. This indicator is intended to calculate the profitability of a bank's foreign exchange operations, which is defined as the ratio of the difference between income and expenses on operations in the foreign exchange market to the average amount of assets.
The profitability of other segments of the activities of credit institutions can be determined in a similar way.
Next, it is necessary to determine the performance indicators of individual divisions of the credit institution. They are determined by the ratio of the profit of each structural unit to the corresponding amount of their expenses. And the efficiency of using the assets at their disposal can be determined by correlating the division's profit to the average values of assets.
Due to the fact that the processes of attracting and placing funds are closely interconnected, the analysis of the profitability of any active and corresponding passive operation must also be carried out in their mutual coordination. It is important to analyze the above indicators together with an analysis of the effectiveness of passive operations, which are calculated as the ratio of the total amount of attracted resources to the total amount of operating assets. This analysis shows how effectively the attracted resources are used:
.
In addition, you can determine the efficiency of attracting resources in the form of the ratio of interest expenses to the average volume of liabilities for the period:
.
This indicator can be detailed by type of resources attracted (interbank loans, deposits, bills, etc.).
In addition to using the coefficient method to analyze profitability, it is also advisable to use factor analysis of profitability, the essence of which is the consistent consideration of quantitative, qualitative and structural factors affecting the indicator under study.
Growth in the profitability of a credit institution ( K 1 ) by reducing the net worth multiplier ( K 3 ) is limited, since asset growth must be supported by an expansion of the resource base.
The growth of this indicator is supported by another indicator - profitability of assets ( K 2 ). Since this indicator is directly dependent on the return on assets ( K 5 ) and the share of profit in the income of the credit institution ( K 4 ), then can be reflected as follows:
By analyzing the dynamics of each indicator, it is possible to identify the impact of each of them on the profitability of assets. A coefficient K 5 , showing the efficiency of asset allocation, can be divided into interest return on assets and non-interest return on assets.
As part of the liquidity analysis, special attention should be paid to the concentration of credit risk, i.e. concentration of a large amount of loans issued to one borrower (indicator K rz , used in calculating the mandatory standard N 6 ). Concentration of credit risk negatively affects the bank's ability to service its obligations with available funds.
In the process of liquidity analysis, it is advisable to consider the issue of compliance between the terms of deposits and the terms of funds in active operations. Short-term funds raised can be used not only for short-term investments, but also for longer periods. In order to establish the limit within which it is possible to direct short-term resources into medium and long-term investments, it is necessary to calculate the coefficient of transformation of short-term resources into long-term ones. This coefficient can be calculated as follows:
,
– credit turnover on receipts of funds to deposit accounts (for a period of up to 1 month, including demand accounts);
– debit turnover for issuing short-term loans from loan accounts (up to 1 month).
Thus, the total amount of funds for long-term investments is determined by the formula:
DV=(DS start +PS+DS end)*k+SF start -SF end +K od,
DS start, DS end – funds in demand deposit accounts at the beginning and end of the reporting period;
SF beginning, SF end – funds in accounts intended for financing and lending capital expenditures and deposits for a period of more than 1 month at the beginning and end of the reporting period;
K od – credit turnover on receipts of funds to the account for financing and crediting capital costs.
In the process of analysis, it is necessary to identify the measure of compliance with liquidity principles by maintaining an optimal ratio between the terms of deposits and the placement of funds in active operations.
When analyzing the risk of loss of liquidity due to a gap in the repayment periods of claims and obligations, Appendix 17 “Information on assets and liabilities by terms of demand and repayment” (form No. 125) to Bank of Russia Instruction dated October 1, 1997 No. 17 “On the preparation of financial statements” is used. .
The analysis determines the indicator of excess (deficit) liquidity, calculated on an accrual basis, defined as the difference between the total amount of assets and liabilities, calculated on an accrual basis by maturity. A positive value of this indicator (excess liquidity) means that the credit institution can fulfill its obligations with a repayment period, for example, from “on demand” to 30 days inclusive, a negative value (liquidity deficit) - the amount of obligations with a repayment period from “on demand” to 30 days inclusive, not covered by the assets of the credit institution with a repayment period from "on demand" to 30 days inclusive. Excess (deficit) of liquidity can be determined for a period: up to 1 day, up to 7 days, up to 30 days, up to 90 days, up to 180 days, up to 1 year, up to 3 years, for all periods.
Excess (deficit) of liquidity, calculated on an accrual basis using Form No. 125, is determined as follows:
(Article 14 gr.i - Art.25 gr.i + Art.24 gr.i) -Article 25 gr.3,
n - the number of the column to which the calculation is performed can take values from 4 to 12.
In order to minimize the risk associated with loss of liquidity, a balance must be maintained between liquid assets and demand deposits, as well as between short-term and long-term assets and short-term and long-term liabilities.
When analyzing the liquidity of a credit institution by maturity, one should take into account the possible risk of a change in the urgency of claims and obligations in the event of unexpected withdrawals of deposits.
In this regard, a tool for effective liquidity management is cash flow forecasting. The realistic cash flow forecast should take into account the inflow of cash resulting from increases in liabilities that are not reflected in the contractual maturity structure because the relevant contracts have not yet been concluded, as well as a decrease in prepaid claims. Similarly, an outflow of funds is projected as a result of an increase in illiquid assets or withdrawal of funds raised on demand and term funds. When drawing up a real liquidity forecast, as opposed to a forecast made on the basis of balance sheet data, it is necessary to decide when funds raised on demand are most likely to be demanded by creditors. Thus, it is possible to distribute obligations over time ranges based on the most likely dates for their repayment. You can also adjust liquidity for any expected off-balance sheet positions. Thus, based on these forecasts, it is possible to draw up a schedule for the future receipt and expenditure of funds.
Excess (deficit) liquidity ratios, calculated on an accrual basis, are defined as the percentage ratio of the amount of excess (deficit) liquidity, calculated on an accrual basis, to the total amount of liabilities:
To identify trends in terms of improvement or deterioration in the liquidity position of a credit institution, the values of liquidity ratios for the reporting period are compared with the values of these ratios for previous reporting periods for at least the last 3 months.
An example of calculating the deficit (excess) of liquidity and liquidity ratios is reflected in the recommended development table for liquidity analysis (Appendix 3).
The study of the structure of funds and sources of a credit organization should begin with liabilities that characterize the sources of funds, since it is passive operations that largely determine the composition and structure of assets.
The main elements of the liability side of a credit institution's balance sheet are: capital, reserves, retained earnings and funds attracted to current, deposit, savings and other accounts.
It is advisable to begin the analysis of the liability structure by identifying the amount of equity, as well as their share in the formation of the total balance.
When analyzing own funds, the state and changes in the structure of a credit organization's own funds are assessed, the reasons for immobilization are identified, and reserves for income growth and balance sheet liquidity are determined.
.
In this case, the amount of immobilization refers to capitalized own funds; diverted funds from profits; own funds transferred to other organizations, invested in securities, diverted into settlements transferred through factoring; accounts receivable.
A decrease in the value of this coefficient over time characterizes the growth of income of a credit institution.
The main source of funds for a credit institution are attracted and borrowed funds. Funds raised include customer deposits, attracted special funds, temporarily available funds for settlement transactions, and accounts payable. And borrowings include interbank loans, interbank financial assistance and sold debt securities.
The analysis is carried out for each type of attracted and borrowed funds: their specific weights are determined, the role of each element in the development of passive operations is identified, and the dynamics of changes in their volume is assessed.
Analysis of the liability structure and assessment of the influence of individual factors is carried out using table. 4.
Table 4
ANALYSIS OF LIABILITY STRUCTURE
|
Name |
Past period |
Current period |
Deviation |
|||
|
Specific gravity |
Specific gravity |
|||||
|
Authorized capital |
||||||
|
Reserve fund |
||||||
|
Other funds |
||||||
|
Funds in clients' current investment accounts |
||||||
|
Deposits |
||||||
|
Loans from other banks |
||||||
|
Funds in settlements |
||||||
|
Creditors |
||||||
When analyzing, it is necessary to determine the cost of resources, study the dynamics of price changes for each type of resource; calculate the share of paid resources; identify the most optimal ones in terms of price and stability.
The average cost of deposit instruments can be defined as the ratio of their costs to the average balance of the corresponding deposits.
To determine the stability of the deposit base, the following indicators are used:
A) average deposit storage period
DS – average balance of deposits;
DS co – credit turnover for issuing deposits for the period t ;
t – number of days in the period.
B) level of subsidence of deposits
,
About the end, About the beginning – deposit balances at the end and beginning of the period;
P – receipts in deposits.
IN) level of deposition of funds from planned revenue
,
About Wed – the average balance of funds on the account for the corresponding period of the previous year, calculated as a chronological average based on actual balances on monthly or quarterly dates;
P fact – actual receipts to the client’s current account (actual sales for the corresponding period of last year);
P pl – expected receipts to the current account (implementation plan) in the planned period.
Next, special attention should be paid to analyzing the degree of dependence of the credit institution on borrowed funds from other banks. At the same time, relative refinancing ratios are determined, the high value of which indicates the existence of large reserves to increase the level of profitability of banking operations.
The next stage of the analysis is to determine the volume of effective resources, since in accordance with the principle of regulating the activities of credit institutions, the entire amount of funds raised cannot be used in carrying out active operations. To calculate effective funds, the following formula can be used:
E sr =UK+O ss +D+O r +O pr -NA-0.10O jur -0.10O yufv -0.07O fr,
Where UK – authorized capital;
Oh ss – equity balances;
D – deposits;
O r – balances on current and other customer accounts;
Oh pr – balances of other borrowed funds;
ON – resources invested in buildings, equipment and other non-performing assets;
About legal – raised funds from legal entities in rubles;
Oh Yuf c – raised funds of legal entities and individuals in foreign currency;
About fr – deposits of individuals in rubles.
According to this formula, the volume of effective resources is determined as the difference between the amount of liabilities and the balances of borrowed funds directed to the fund for regulating credit resources, as well as placed in liquid assets that do not generate income.
Next, the obtained result is compared with the funds actually invested in active operations and the amount of free resources is determined. When placing these resources, it is necessary to distribute them according to the periods of use, i.e. take into account the possible period of their use.
You can also determine the efficiency of using these resources by the ratio of actually invested funds to the amount of effective resources. Using this indicator, you can calculate the percentage of reserve in the use of available resources.
The next stage of the analysis is to study and evaluate the quality and effectiveness of the allocated funds.
Table 5
ASSET STRUCTURE ANALYSIS
|
Name |
Past period |
Current period |
Deviation |
|||
|
Specific gravity |
Specific gravity |
|||||
|
Cash and accounts with the Central Bank of the Russian Federation |
||||||
|
Government bonds |
||||||
|
Funds in credit institutions |
||||||
|
Net investments in securities for resale (4.1.-4.2.) |
||||||
|
Securities available for resale (book value) |
||||||
|
Provision for possible impairment of securities |
||||||
|
Loan and equivalent debt |
||||||
|
Interest accrued (including overdue) |
||||||
|
Funds leased |
||||||
|
Reserves for possible losses |
||||||
|
Net loan debt (Article 5-Article 8) |
||||||
|
Fixed assets and intangible assets, household materials and low-value and wearable items |
||||||
|
Net long-term investments in securities and shares (Article 11.1-Article 11.2) |
||||||
|
Long-term investments in securities and shares (book value) |
||||||
|
Provision for possible impairment of securities and shares |
||||||
|
Deferred expenses for other operations, adjusted for accrued interest income |
||||||
|
Other assets |
||||||
|
Total assets (item 1 + 2 + 3 + 4 + 6 + 7 + 9 + 10 + 11 + 12 + 13) |
||||||
When carrying out the analysis, it is necessary to link the methodology for analyzing the resource base with the assessment of the main directions of resource allocation; identify the most important sources of funds in relation to the directions of their placement; evaluate the effectiveness of active operations of a credit institution.
The analysis should begin with studying the dynamics of total assets, as well as the specific weights of their structural components, since indicators of volume and dynamics to one degree or another characterize the effectiveness of invested funds.
The analysis of the asset structure is carried out using table. 5.
Further, the analysis is carried out in the context of the main components of the active operations of the credit institution. The information base in this case can be reporting data in the form of Appendix No. 3 “Analytical data on the state of the loan portfolio” to the Central Bank Instruction No. 17 dated October 1, 1997; Appendix No. 3 “Information about the client network of a credit organization (branch)” to the Directive of the Central Bank of the Russian Federation dated October 24, 1997 N 7-U “On the procedure for drawing up and submitting reports by credit institutions to the Central Bank of the Russian Federation.” During the analysis, the share of loans issued in general is determined the volume of assets, the amount of required required reserves, the dynamics of absolute and relative growth of loans of each type.
The amount of required required reserves is determined using the form of Appendix No. 7 “Calculation of the reserve for possible loan losses” to the Central Bank Instruction No. 17 dated October 1, 1997 and the Central Bank Instruction No. 62a dated July 30, 1997 “On the procedure for the formation and use of the reserve for possible loan losses " The amount of the calculated and actually formed reserve is compared, the share in the total amount of debt is calculated and the optimal value is identified.
Next, the effectiveness and riskiness of individual active operations are assessed. In this case, the analysis is carried out depending on the timing of investments, the degree of risk, investment objects, types of investments, methods of generating income.
Appendix 1
Classification of assets depending on the degree of investment risk and their possible depreciation
|
Risk coefficient,% |
|
|
Group I |
|
|
Funds in correspondent and deposit accounts with the Bank of Russia |
|
|
Required reserves transferred to the Bank of Russia |
|
|
Bank funds deposited for check payments |
|
|
Cash and equivalent funds, precious metals in storage and in transit |
|
|
Accounts of ORTS settlement centers in Bank of Russia institutions |
|
|
Funds in savings accounts upon issue of shares |
|
|
Accounts of credit institutions for cash services of branches |
|
|
Investments in bonds of the Central Bank of the Russian Federation (Bank of Russia), not encumbered with obligations |
|
|
Investments in government debt obligations of countries from the group of developed countries, not encumbered with obligations |
|
|
Funds of Authorized banks that have permission to open and maintain special accounts of type “C”, deposited with the Bank of Russia |
|
|
Group II |
|
|
Loans guaranteed by the Government of the Russian Federation, in the part for which guarantees were received |
|
|
Loans secured by precious metals in bullion, in part equal to their market value |
|
|
Funds in ORTS settlement centers |
|
|
Funds of participants in ORTS settlement centers deposited to complete settlements for ORTS operations |
|
|
Investments in government debt obligations and bonds of internal and external currency loans of the Russian Federation, not encumbered with obligations |
|
|
Unencumbered investments in government debt of countries outside the developed country group |
|
|
Loans and other funds provided by the bank to the Ministry of Finance of the Russian Federation |
|
|
Bills of exchange issued and avalized by federal authorities |
|
|
III group |
|
|
Investments in debt obligations of constituent entities of the Russian Federation and local governments, not encumbered with obligations |
|
|
Requirements for banks of countries from the “group of developed countries” in hard currency and precious metals (including funds in correspondent accounts, granted (placed) loans and deposits, as well as requirements for urgent operations (for the supply of cash, precious metals, securities), recorded on the balance sheet account 47 408 in connection with the start of settlements before the maturity date of the forward transaction |
|
|
Loans secured by securities of constituent entities of the Russian Federation and local governments in a part equal to the market value of these securities |
|
|
Loans to customers provided by banks with 100% participation of foreign investment, under guarantees received from parent banks of countries from the “group of developed countries”, to the extent for which guarantees are received |
|
|
Funds in the accounts of settlement participants in settlement non-bank credit institutions |
|
|
Loans issued to government bodies of constituent entities of the Russian Federation and local self-government bodies |
|
|
Loans issued by a bank, for which the proper fulfillment of the borrower’s obligations is secured by guarantees from government authorities of the constituent entities of the Russian Federation, to the extent equal to the responsibility of the said authority for the guarantee |
|
|
Syndicated and similar loans in a part equal to the amount of funds provided to the bank by third parties |
|
|
Loans secured by government securities of the Russian Federation in a part equal to the market value of these securities |
|
|
Bills of exchange of exporting organizations that meet the criteria defined in clauses 4.1 - 4.6, 4.8, 4.10, 4.11 of Bank of Russia Regulations dated December 30, 1998 N 65-P “On carrying out rediscount operations by the Bank of Russia”, if the export contract stipulates in accordance with clause 8.9.2 of the said Regulations in one of the following cases: Payment for goods by issuing an irrevocable confirmed letter of credit by one of the First-Class banks; availability of a bank guarantee for the execution of the contract from First-Class Bank; the first-class buyer is one of the parties to the contract; Bank risks associated with financing an export contract are insured by a first-class insurer |
|
|
IV group |
|
|
Funds in accounts in banks - residents of the Russian Federation |
|
|
Funds in accounts in non-resident banks of countries not included in the “group of developed countries”, except for funds in accounts in non-resident banks of neighboring countries |
|
|
Securities for resale |
|
|
Funds in correspondent and deposit accounts in precious metals in banks - residents of the Russian Federation and in banks - non-residents of countries not included in the "group of developed countries" |
|
|
All other bank assets |
|
Appendix 2
Calculation of capital adequacy ratio
|
Characteristics |
0% |
||||
|
Availability |
|||||
|
Checks and other cash documents |
x,xxx,xxx |
||||
|
Receivable from the correspondent account of CBRU-Nostro |
|||||
|
Receivable from the correspondent account of CBRU-Vostro |
|||||
|
Receivable from the mandatory reserve account of the Central Bank of Russia |
|||||
|
Receivable from other CBR accounts |
|||||
|
Correspondent account-Nostro for receipt from other banks |
x,xxx,xxx |
||||
|
Receivable from other banks correspondent account-Vostro |
x,xxx,xxx |
||||
|
Receivable from other banks, other deposits |
x,xxx,xxx |
||||
|
Treasury bills |
|||||
|
Government bonds |
|
Characteristics |
0% |
|||||
|
Securities and bonds of the Central Bank of Russia |
||||||
|
Eurobonds |
||||||
|
International Standard Gold |
||||||
|
Loans secured by real estate |
||||||
|
Loans receivable (net provision for loan losses + loans secured by real estate) |
x,xxx,xxx |
|||||
|
Other assets |
x,xxx,xxx |
|||||
|
Total assets |
x,xxx,xxx |
x,xxx,xxx |
||||
|
Off-balance sheet accounts |
||||||
|
Letter of Credit |
||||||
|
Official loan obligation with an original term of more than 1 year |
||||||
|
Simple loan obligation with an original term of up to 1 year. |
||||||
|
Forward Purchase and Sale of Agreements and Assets Sold with Source |
x,xxx,xxx |
|||||
|
Total off-balance sheet accounts |
x,xxx,xxx |
|||||
|
Total assets |
x,xxx,xxx |
x,xxx,xxx |
||||
|
Total risky assets |
||||||
|
Total assets adjusted for risk: zz,zzz,zzz |
||||||
|
Subscription per share receivable – ordinary |
x,xxx,xxx |
|||||
|
Subscription per share receivable – preferred |
x,xxx,xxx |
|||||
|
Paid up capital |
x,xxx,xxx |
|||||
|
General purpose reserve fund |
x,xxx,xxx |
|||||
|
Reserve for devaluation |
x,xxx,xxx |
|||||
|
retained earnings |
x,xxx,xxx |
|||||
|
Net profit (loss) for the period |
x,xxx,xxx |
|||||
|
Minus Goodwill |
||||||
|
Investments in unincorporated branches engaged in banking and financial activities |
||||||
|
Investments in the capital of other banks and financial institutions |
||||||
|
Loan loss reserve |
x,xxx,xxx |
|||||
|
Excess of the appraised value of the increase over the original cost |
x,xxx,xxx |
|||||
|
Long-term debts (last priority) |
||||||
|
Total Capital |
x,xxx,xxx |
|||||
|
Divided by: Total risk-adjusted assets |
||||||
|
Capital adequacy ratio(410:430) |
| |||||
The purpose of analyzing foreign exchange transactions is to determine the efficiency of a bank’s work with a particular currency and the degree of risk of investing in such transactions. The result of the analysis of foreign exchange transactions is the search for ways to hedge funds invested by the bank in these transactions, in other words, finding a reasonable balance between the profitability and risk of the bank.
Classification of banking foreign exchange operations can be carried out both according to criteria common to all banking operations (passive and active operations), and according to special classification criteria characteristic only of foreign exchange operations. Here we will look at the analysis of those foreign exchange transactions that require a special approach. For example, a letter of credit belongs to the category of lending transactions and to the category of settlement transactions.
It is necessary to clarify that all currency transactions are closely interrelated and can complement each other, corresponding to several basic classification criteria. The diagram shows the standard classification of foreign exchange transactions.
Non-trading operations of a commercial bank. Non-trading transactions include bank operations related to the movement of capital and not related to settlements for the export and import of goods and services. Income from non-trading operations is calculated on a commission basis. The size of the commission for each transaction is usually determined based on the average market indicators, as well as the cost of each type of transaction. It should be remembered: banks should not constantly reduce the amount of commission in order to attract customers. To determine the effectiveness of this type of operation, a profitability ratio is used, for example, the ratio of the amount of income to a unit of assets invested in these operations. In this case, income from non-trading operations can be calculated as follows:
Bottom = K1 * p + K2 * p + KZ * p + .... + Kp * p,
where K1, K2, KZ, Kp - the amount of commission for each type of non-trading transaction;
Example: The daily income of bank exchange office No. 1 is 1200 soms. At the same time, the bank's Exchange Office operates only 5 days a week and, accordingly, 22 days a month. In this case, he has a monthly income of 26,400 soms. A loan issued for 30 days at a rate of 30% will bring the bank 10,750 soms. The ratio decreases to 2.46 times. Now you can calculate your current expenses. To service one loan agreement per month, it is necessary to spend 10% of the salary of one loan specialist (provided that he handles 10 loan cases) - 800 soms, transportation costs associated with the specialist’s visit to the client’s enterprise - 100, others - 100 soms. Total 1000 soms. The bank's profit from lending will be 10,700 - 1,000 = 9,700 soms. The costs of the exchange office, as practice shows, are much higher. This includes: the full salary of one cashier - 5,000 soms; depreciation and routine maintenance of special equipment (banknote counters, currency detectors, etc.) - 300 soms, and if the exchange office is located outside the bank, it is necessary to add the bank's expenses for guarding the point - 5000 soms. The costs of daily collection of cash valuables will increase expenses by another 10,000 soms. Other expenses - 300 soms. Total expenses of the exchange office for a month can amount to 20,600 soms. The bank's profit from exchange operations in this case will be equal to 5,800 soms (26,400 - 20,600), which is already not in their favor (5,800 versus 9,700 for the loan).
To increase the profitability of operations related to cash currency exchange, the bank needs to take additional measures. For example, introduce a longer or round-the-clock operation of the point, including weekends, install an ATM, etc.
Correspondent relationships are a traditional form of banking relations, used mainly in servicing foreign trade and including all possible forms of cooperation between banks. The increase in the volume of international banking transactions, the expansion of their types, while simultaneously increasing the risks associated with such operations, have caused a change in traditional views on correspondent relations. If previously banks assigned correspondent relationships a secondary, often purely technical role, now they are considered as one of the tools for reducing risks and the most important source of generating additional profit. When concluding an agreement to open a correspondent account, commercial banks must conduct an analysis to reduce the following risks: insurance, political, risk of an individual foreign bank, risk of an individual currency or exchange rate risk. When selecting foreign correspondents, preference is given to national, central or large commercial banks in their country, for whose obligations liability has been confirmed. The number of correspondent banks and open accounts should be optimal for making current payments and other transactions, while the balances in correspondent accounts should not be split up in order to be able to make a large payment. However, in this case, a concentration risk arises, so the National Bank of the Kyrgyz Republic introduces a limit on the maximum amount of risk per borrower, defined as:
K 1.3/1.4=MP/4CK,
where МР is the amount of funds (in som terms) held in a nostro correspondent account in a non-resident bank of the Kyrgyz Republic;
NSC is the net total capital of the bank. The limit values are set at:
0.30 - for a correspondent bank not associated with the bank;
0.15 - for a correspondent bank associated with the bank.
Thus, a bank with a NSC equal to 122,345,000 soms, the balance of funds on a correspondent account in a foreign bank should not exceed 36,703.5 thousand soms or 823.5 thousand US dollars (at the rate of 43.98 soms/$) for a correspondent bank not associated with the bank.
At the same time, for correspondent accounts opened by the bank in non-resident banks, the rating of which is higher than the maximum category B1, the standard K1.3/1.4 is not calculated.
The analysis of transactions on correspondent accounts consists of several stages. Initially, banks monitor potential correspondents in order to determine their stability (rating) and financial condition, the quantity and quality of services provided, the scale of the correspondent network, as well as tariff policy. With the establishment of correspondent relations and the opening of an account, the current analysis of each bank is carried out on an ongoing basis. Currency department analysts must systematically draw conclusions based on the financial statements they receive for each correspondent bank, as well as reports from rating agencies. The main goal of the analysis of correspondent banks is the timely withdrawal of funds from problem banks. In addition, analysis of the tariff policy of each correspondent bank allows you to work with banks that have the ability to place balances overnight or pay commissions regardless of the amount of funds in the account, which increases the efficiency of foreign exchange transactions. Thus, the goal is to select the most effective correspondent bank.
Example.
The cost of a simple bank transfer of funds (by telex) at correspondent bank A is $10, at bank B - $12. In this case, let the average monthly number of transfers be the same - 50 each. Therefore, the costs for bank A will be $500, for bank B - $600. The average monthly balance of the bank's funds in each of these correspondent accounts does not exceed $350,000-400,000. According to the terms of the correspondent agreement with bank A, you can place funds overnight if you have at least $500,000 in your account; there are no such restrictions for bank B. Therefore, with a correspondent account in Bank B, you can receive a monthly income of at least $292 from placing foreign currency funds overnight (350000x1%/12), provided that the overnight rate is 1%, which means you can reduce the amount of expenses by the same amount: 600 -292=$308. All other things being equal, working with correspondent accounts A and B, the cost of expenses is lower in bank B, which allows us to conclude that work with this particular correspondent account is efficient.
However, we should not forget that an analysis of only the profitability of a correspondent account is not complete. Often, correspondent banks offer each other additional opportunities for free staff training in their training centers, visa support (if necessary), consultations on local markets, search for reliable clients and counterparties, which is sometimes difficult to evaluate in monetary terms. (See Appendix 2.)
Conversion operations
Conversion transactions are transactions for the purchase and sale of cash and non-cash foreign currency for national currency. These include:
A spot transaction is an operation carried out at a rate agreed upon today, when one currency is used to purchase another currency with a final settlement date on the second business day, not counting the day the transaction was concluded. Spot foreign exchange transactions account for about 90% of all foreign exchange transactions.
Forward operation (forward transactions) is a contract that is concluded at the present time for the purchase of one currency in exchange for another at a specified rate with the completion of a transaction on a certain day in the future. In turn, the forward operation is divided into:
Transactions with an outrider - with the condition of delivery of currency on a certain date;
Transactions with an option - with the condition of an unfixed delivery date of the currency.
A swap transaction is a foreign exchange transaction that combines the purchase or sale of a currency on a spot cash basis with the simultaneous sale or purchase of the same currency for a period at the forward rate. Swap transactions include several varieties:
Report transaction - sale of foreign currency on spot terms with its simultaneous purchase on forward terms;
- · deport transaction - purchase of foreign currency
- · on spot and simultaneous sale terms
- · it is on forward terms.
Currently, purchase and sale are carried out on forward terms, as well as purchase and sale of futures contracts.
Futures transactions are used by banks primarily to bring the bank’s currency position (which will be discussed below) into compliance with the requirements of the National Bank of the Kyrgyz Republic.
International settlement transactions related to the export and import of goods and services
In foreign trade, such forms of payment as documentary letter of credit, documentary collection, and bank transfer are used.
Documentary letter of credit is an obligation of the bank that opened the letter of credit (issuing bank) at the request of its applicant client (importer), to make payments in favor of the exporter (beneficiary) against the documents specified in the letter of credit.
In settlements using the documentary collection form, the issuing bank assumes the obligation to present the documents provided by the principal to the payer (importer) for acceptance and receipt of money. Income from servicing clients' foreign currency accounts includes commission for cashing out foreign currency. When exchanging one currency for another, there is a discrepancy between assets and liabilities in amounts for each currency. This discrepancy is called the bank's foreign exchange position. The National Bank of the Kyrgyz Republic establishes an economic standard to limit the amount of exchange rate risk when exchanging various currencies for commercial banks operating in the territory of the Kyrgyz Republic. Currency position arises in cases;
- · purchases and sales, conversions;
- · receiving income and making expenses based on the results of transactions in foreign currency;
- · issue of various off-balance sheet obligations denominated in foreign currency, etc.
In any banking transaction, when one currency is transferred to another, currency risk arises. A currency position can be open (discrepancy between assets and for each type of currency on a certain date) and closed (equality of assets and liabilities, respectively). In turn, an open currency position can be long when assets exceed liabilities, and short when liabilities exceed assets. An open currency position can lead to both additional income and additional losses. The amount of currency risk at the end of the operating day should not exceed the limits established by the National Bank of the Kyrgyz Republic in relation to the bank’s capital. The size of short and long positions is calculated for each currency and should not exceed 15% of the bank’s net total capital. The total value of short and long positions is also calculated. The maximum size of total currency positions (both long and short) should not be more than 20%.
Operations to execute forward contracts for the purchase and sale of currency. The content of this service is as follows. On the day of the forward sale, the client is offered to pay a small part of the funds for the opportunity, after a certain time, to buy currency from the bank at a predetermined rate or sell it currency on the same terms. The amount the customer pays at the time of sale is called commission or bank income. By the time the forward is executed, the content of the operation is reduced to a regular non-trading operation. The client also makes a certain deposit to confirm the seriousness of intentions for the period between the sale and execution of the forward.
The benefit of the bank in providing this service is twofold: free funds are attracted; it becomes possible to almost completely plan work in non-trading operations, since it is known how much and at what rate foreign currency should be sold (purchased) after a certain period of time.
It should also be remembered that carrying out these operations is associated with a certain risk for the bank - a sharp change in the exchange rate against the previously planned one is possible and you will have to sell or buy currency on unfavorable terms. It is possible to minimize this risk by using the following methods: calculate forward rates using special technology; clearly maintain a payment calendar for these obligations; carry out full-scale “forward non-trading operations, coordinating distant obligations for the purchase and sale of currency.” The operation with a forward has certain features. It provides for the bank and the buyer (legal or individual) to purchase the right to acquire (sell) currency assets (forward) on the date specified by the terms of the forward, with the fixation of the selling price at the time of conclusion (sale) of the forward. The buyer of a forward has the right to refuse to purchase (sell) currency or the right to resell the forward to third parties. The holder of a forward can be either an individual or a legal entity, but only an individual can exercise his right to purchase (sell) foreign currency. The holder of a forward can exercise his right to purchase (sell) currency only within the period determined when concluding the forward. If the holder fails to exercise his right to purchase (sell) currency within the period specified by the forward, the latter loses its force and is no longer binding on the bank. The formula for calculating the deposit when implementing a forward for the purchase of foreign currency is as follows:
AMOUNT OF DEPOSIT = (A-B)*360/C*K*Ost,
where A is the expected market exchange rate at the time of forward implementation;
B - selling rate under forward terms;
(A-B) - the difference in rates that must be covered by attracting a deposit and using it as a credit resource;
C is the period for fulfilling forward obligations, days;
K is the coefficient for attracting bank resources in comparison with the discount rate of the NBKR;
Ost. - discount rate of the NBKR at the time of conclusion of the forward.
The formula for calculating the deposit for forwards for sale has a similar form, only the elements in brackets are swapped:
AMOUNT OF DEPOSIT = (B - A)*360/C*K*Ost
where, B is the purchase rate under the terms of the forward;
A - the bank's expectations regarding the minimum purchase rate.
The general principle of implementing a forward comes down to the following: it can be attractive at the exchange rate, and possible losses in the exchange rate should be easily covered by the benefits from using the deposit amounts as a resource.
Futures transactions. A currency futures is a contract for the future exchange of a certain amount of one currency for another at a predetermined rate. Futures exchanges around the world typically use direct quotation of exchange rates, which specifies the amount of domestic currency required to purchase a unit of foreign currency. In currency futures listed on U.S. exchanges, futures prices reflect the dollar value of a unit of the underlying currency. The purchase price of a currency futures contract is determined primarily by the forward rate of the underlying currency.
The vast majority of currency futures are traded before the delivery date, i.e. buy trades are replaced by sell trades of an equal amount and vice versa, thus closing open positions and avoiding physical delivery of the currency. When trading currency futures, it is important to anticipate changes in the rate of the base currency in the future and constantly monitor changes in the rate throughout the entire validity period of the futures, and if you catch an undesirable trend, get rid of the contract in a timely manner. Speculators close positions when they either make a profit or decide to cut their losses.
