FE Circular No. 07: Calculation of Daily Exchange Position

Foreign Exchange Policy Department
Bangladesh Bank
Head Office
Dhaka
Website: www.bb.org.bd

FE Circular No. 07 Date: 15 April, 2010

Head Offices/Principal Offices of all Authorised Dealers in Foreign Exchange in Bangladesh. Dear Sirs, CALCULATION OF DAILY EXCHANGE POSITION It has been decided to amend the Annexure-A, Annexure-B and Annexure-C of FE Circular No. 26, dated 29-12-2009. Revised versions of Annexure-A and Annexure-B are attached hereto for needful action at ADs’ end. Instructions for filling up the Annexures as amended are detailed in revised Annexure-C to this circular. The ADs shall submit daily exchange position as per the revised format with effect from May 02,
2010. However, submission of daily exchange position under the existing formats (as per FE Circular No. 07,
dated 08-06-2005) will continue till 30-06-2010 and the existing formats shall stand replaced by the new formats from July 04, 2010. Please acknowledge receipt and bring the contents of this circular to the notice of all concerned. Yours faithfully, (Mohd. Humayun Kabir) Deputy General Manager Phone: 9512607

Overall
1 2 3 4 5 6 7 8 9 10 11 12 13 ib3) Others ie) Others iib1) NFCD iib2) RFCD iib3) ERQ iib6) Others A) i. Purchases from Bangladesh Bank
ii. Sales to Bangladesh Bank
iii. Net position with Bangladesh Bank (i-ii)
B) i. Purchases from other banks/correspondents abroad/OBUs
ii. Sales to other banks/correspondents abroad/OBUs
iii. Net position with other banks/correspondents abroad/OBUs (i-ii)
C) i. Purchases from customers (ia+ib) ia) against exports ib) others
ii. Sales to customers (iia+iib)
iia) against imports iib) others
iii. Net position with customers (i-ii)
C4) Others
D) Overall position (A.iii + B) (Balance sheet + Off-Balance sheet) D) Total spot/ cash transactions (net) during the day (A.iii + B.iii + C.iii)
2. Spot/Cash transactions during the day :
iii. Net position of assets/ liabilities (1.Ai-1.Aii)
B) Forward against contract (Bi+Bii)
Bi) Forward against contract with banks/corrs. abroad/OBUs Bii) Forward against contract with customers C) Contingent liabilities (C1+C2+C3+C4) C1) Letters of credit C2) Letters of guarantee C3) Acceptances given on behalf of customers iid) Others ib1) BB clearing account ib2) Placement abroad ic) Cash holding id) Outward bills purchased
ii. Foreign currency liabilities (iia+iib+iic+iid)
iia) Credit balances in Nostro account as per local book iib) Balances held on account of customers iib4)FC Accounts iib5) FDD, TT, MT etc. payable ia) Debit balances in Nostro account as per local book ib) Investments

1. Net position at the beginning of the day :
   A) i. Foreign currency assets (ia+ib+ic+id+ie) iic) Back to back LC fund awaiting for remittance DAILY STATEMENT OF EXCHANGE POSITION FE Circular 07 : Date : 15/04/2010 Name of the Authorised Dealer Bank...................… Open position limit ..............................…Statement for the day ............................. Annexure-A : Page-1 Other currencies in equivalent JPY GBP USD USDParticulars USD Total of Net Long Positions (Eqv USD) EURO GBP Overall Net Exchange Position Total of Net Short Positions (Eqv USD) Balance sheet Off-balance sheet EURO JPY Other currencies in equivalent USD Total Position

Overall
1 2 3 4 5 6 7 8 9 10 11 12 13
3. A1) Forward Transactions during the Day (Ai-Aii)
Ai) Purchases (i+ii+iii)
i. Purchases from other banks/corrs. abroad/OBUs
ii. Purchases from customers
iii. Others
Aii) Sales (i+ii+iii)
i. Sales to other banks/corrs. abroad/OBUs
ii. Sales to customers
iii. Others
A2) Settlement of outstanding forward transactions during the day ( i-ii) i.Purchases
ii. Sales
5. Total spot position as at the end of the day (1.A iii +2.D)
6. Total forward position as at the end of the day (1.B+ 3.A1-3.A2)
7. Total currency-wise position as at the end of the day (Row 5+Row 6)
8. Total of the Net Long and Total of the Net Short Positions (Eqv US Dollar)
9. Overall Net Exchange Position (Eqv US Dollar)
10. Overall Net Exchange Position (Eqv BDT)
11.Conversion Rate (equivalent Taka) ib) Lodgement of documents against LC during the day ii) Letters of guarantee (iia-iib) iva) Other new contingent liabilities created during the day ivb) Other contingent liabilities settled during the day iii) Acceptances (iiia-iiib) iiia) Acceptances given during the day iiib) Acceptances settled during the day iv) Other (iva-ivb) iia) Guarantees issued during the day iib) Guarantees settled during the day Total of Net Long Positions (Eqv USD) Total of Net Short Positions (Eqv Particulars USD EURO USD) JPY i) Letters of credit ( ia-ib) ia) Letters of credit issued during the day Overall Net Exchange Position
4. Issuance/settlement of contingent liabilities during the day ( i+ii+iii+iv)
JPY
GBP
Other currencies in equivalent
GBP
Other
USD currencies in equivalent
USD
USD
EURO
FE Circular 07 : Date : 15/04/2010
Annexure-A : Page 2
Balance sheet Off-balance sheet Total Position

Overall
1 2 3 4 5 6 7 8 9 10 11 12 13 ib3) Others ie) Others iib1) NFCD iib2) RFCD iib3) ERQ iib6) Others C3) Acceptances given on behalf of customers C4) Others D) Overall position (A.iii + B) (Balance sheet+Off-Balance sheet) iid) Others
iii. Net position of assets/ liabilities (1.Ai-1.Aii)
B) Forward against contract (Bi+Bii)
C) Contingent liabilities (C1+C2+C3+C4)
C1) Letters of credit
C2) Letters of guarantee ib1) BB clearing account Bi) Forward against contract with banks/corrs. abroad/OBUs Bii) Forward against contract with customers id) Outward bills purchased
ii. Foreign currency liabilities (iia+iib+iic+iid)
iia) Credit balances in Nostro account as per local book iib) Balances held on account of customers iib4)FC Accounts iib5) FDD, TT, MT etc. payable iic) Back to back LC fund awaiting for remittance Balance sheet

1. Net position at the beginning of the day :
   A) i. Foreign currency assets (ia+ib+ic+id+ie) JPY GBP Other currencies in equivalent USD EURO JPY ib2) Placement abroad ic) Cash holding USD ia) Debit balances in Nostro account as per local book ib) Investments Annexure-B Total of Net Long Positions (Eqv USD) Total of Net Short Positions (Eqv USD) Total Position Particulars USD EURO GBP Other currencies in equivalent USD Off-balance sheet Overall Net Exchange Position DAILY STATEMENT OF EXCHANGE POSITION FE Circular 07 : Date : 15/04/2010 Name of the Authorised Dealer Bank...................… Open position limit ..............................…Statement for the day ending ............................. and beginning……………..

• Authorised Dealers shall maintain records of their exchange position in foreign
  currencies as at the close of business on each working day in the prescribed proforma (See AnnexureA and AnnexureB). The currency wise daily exchange position statements should be submitted to Bangladesh Bank on the following working day.

• Banks shall maintain their overall exposures in foreign currencies (overall net
  exchange position) within the ‘Open position limit’ at the end of the day. The open position limit is required to be approved by the Bangladesh Bank on the basis of total capital (sum of Tier‐1, Tier‐2 & Tier‐3) and some other qualitative judgements.

• The proforma of exchange position has been drawn up to suit the different types of
  book keeping used in different banks. The main items which may cause some difficulties are explained below. In the event of any further difficulty being encountered, the Authorised Dealer should refer the matter to the Foreign Exchange Policy Department of Bangladesh Bank. Guidelines for Calculation and Reporting of Foreign Exchange Exposure of Bank.

• Foreign currency exposure of bank is defined as the sum of all foreign currency
  denominated assets and liabilities. The exposure shall also include the net forward and other possible off‐balance sheet items (as decided by Bangladesh Bank) in each currency. No foreign currency denominated asset or liability can be ignored, unless it has been explicitly agreed with the Bangladesh Bank.

• Bank's overall foreign exchange exposure (i.e. overall net exchange position) is to
  be measured in two successive steps: first, the measurement of the exposure in each single currency, and second, the measurement of overall foreign exchange exposure (i.e. overall net exchange position) by aggregating the sum of the net short positions or sum of the net long positions whichever is higher. Calculation of Net Exchange Position in Each Currency

• Bank’s net exchange position in each currency shall be calculated by summing (i) net
  position in balance sheet items and (ii) net position in off‐balance sheet items.

• Balance sheet items include spot position only. The net spot position is the
  difference between foreign currency assets and the liabilities in the balance sheet. This should include all accrued income/expenses.

• Offbalance sheet items include all foreign currency denominated assets and liabilities
  not included in the balance sheet. These transactions are recorded in the off‐balance sheet section of the book of a bank.

• Offbalance sheet items include forward position denominated in foreign currency.
  Net Forward Position in a currency represents all amounts to be received less all amounts to be paid at a future value date under forward foreign exchange transactions including the far leg position of currency swap contracts. Therefore, banks shall arrive at net foreign exchange position in each currency by adding (i) net spot position and (ii) net forward position.

• Banks shall, thus, calculate the overall net exchange position in the following
  manner:
  (i) Calculate the net exchange position in each currency; (ii) Convert the net positions in various currencies in equivalent USD [using the conversion rate determined by ‘Forex Reserve and Treasury management Department (FRTMD) of Bangladesh Bank’ or ‘Bangladesh Foreign Exchange Dealers Association (BAFEDA)’]; (iii) Arrive at the sum of all the net long positions; (iv) Arrive at the sum of all the net short positions; (v) Arrive at the overall net foreign exchange position [higher of (iii) or (iv)] The overall net foreign exchange position thus arrived must be kept within the limit approved by Bangladesh Bank.

• Net Exchange Position shall be worked out on the basis of opening balance and other
  transactions of the day concerned as per the local books of the Authorised Dealer. All assets take the form of debit balances and all liabilities the form of credit balances. Therefore, if an Authorised Dealer holds a credit balance with its correspondent/OBU book, its local book will show a debit balance, as the AD is holding an asset. Similarly, an overdrawn position with overseas correspondent/OBU book will be shown as a credit balance in local book. No under valuation shall take place; assets are to be marked to market in adherence to the 'Guidelines for Core Risks Management'. Balance sheet and off‐balance sheet exposures are to be reported separately but added together to arrive at overall exposures in individual currency. The nostro balances as per local book and nostro balances as per book of the overseas correspondents/OBU should be completely reconciled. The banks shall take utmost measures for complete reconciliation as suggested in the ‘Core Risk Guidelines on Foreign Exchange’.

• Submission of Daily Exchange Position Statement
  Banks are required to submit two daily statements:

i. statement stating the opening exchange position and transactions during the
reporting day (Annexure A), that is, opening stock and flow data respectively
ii. the position at the close of the day (AnnexureB), i.e., the opening position for
the next day.

• Transfer between different foreign currency accounts does not affect in day
  transaction. For instance, the transfer of the balance in an NFCD account after maturity to an approved foreign currency account does not constitute buy or sale on the part of the bank on the day transaction. Description of some items of the formats [Annexure A, Annexure B] Clarification of the Contents of the Columns Item in Column Clarification 1 Balance sheet items in USD only 2 Balance sheet items in EURO only 3 Balance sheet items in JPY only 4 Balances sheet items in GBP only 5 Summation of balance sheet items in all other currencies converted in equivalent USD 6 Off‐balance sheet items in USD only 7 Off‐balance sheet items in EURO only 8 Off‐balance sheet items in JPY only 9 Off‐balance sheet items in GBP only 10 Summation of off‐balance sheet items in all other currencies converted in equivalent USD 11 Total of Long Positions (among different currencies as indicated in Row 1.D and Row 8, as the case may be ) in equivalent US Dollar. 12 Total of Short Positions (among different currencies as indicated in Row 1.D and Row 8, as the case may be ) in equivalent US Dollar 13 Overall net foreign exchange position i.e. higher of 11 or 12 above with + (plus) sign in case of long position and with – (minus) sign in case of short position as the case may be. Clarification of Items of the Rows :

1. A.id: Outward bills purchased
   Banks have different methods of entries for outward bills purchased. If a bank inputs the value of any outward bill purchased immediately into their currency account, then such transaction need not be reported under this head. On the other hand, some banks debit their bills purchased to a temporary suspense account and transfer to their currency account when the bill is realized. When the exchange position is prepared before realization of the bill(s), the total outstanding purchased export bill should be reported under this head. After realization of bills, such transactions are to be reported in local book and the respective head will be adjusted accordingly. The amount of bills sent for collection shall not to be reported under this head.
2. A.ie: Others
   Opening balance of any foreign asset not covered in 1.A. (ia through id) will have to be reported under this head. Besides, amount of unsettled spot purchase transactions (spot

purchase transactions not yet settled/not yet booked for) against firm deal/contract shall have to be reported under this head. The particulars of such balances, if reported, should be mentioned in foot note. After settlement, such transactions are to be booked for in local book and the respective head will be adjusted accordingly.

1. A.iib5: FDDs, MTs and TTs payable :
   Banks issue FDDs, MTs and TTs on correspondents to pay foreign currency or equivalent to the beneficiaries by debiting their nostro accounts. If a bank inputs the value of such instruments/transfers immediately into their currency account, then such transactions need not be reported under this head. If the Authorised Dealer does not enter into his currency position the amount of draft or transfer until it is actually paid, the amount need to be reported under this head. After settlement, such transactions are to be reported in local book and the respective head will be adjusted accordingly.

2. A.iib6: Others:
   Balances on account of customer account other than FC, NFCD, RFCD, ERQ etc. (out of exchange position) and not covered by any head as mentioned above will have to be reported under this head. The particulars of such balances, if reported, should be mentioned in footnote.

3. A.iic: Back to back letters of creditfund awaiting for remittance:
   Under back‐to‐back import system, import bills are usually paid from export earnings. Bank receives export proceeds and retains these to settle import bills accordingly on maturity. Balance in these accounts (e.g. back to back margin account) should be reported under this head. After payment is made on maturity, such transactions are to be reported in local book and the respective head will be adjusted accordingly.

4. A.iid: Others
   Opening balance of foreign liabilities not covered in 1.A (iia through iic) will be reported under this head. Besides, amount of unsettled spot sales transactions against firm deal/contract shall be reported under this head. The particulars of such balances, if reported, should be mentioned in foot note. After settlement, such transactions are to be booked for in local book and the respective head will be adjusted accordingly.

5. Aiii: Net position of assets/liabilities:
   Difference between the total of items under A.i and total of items under A.ii will be reported under this head.

6. B: Forward against contract
   Banks offer forward booking to other banks and customers as well. Currency‐wise net outstanding amount of forward derived from purchase or sale from/to banks and customers against firm contract shall be reported under this head.

7. C: Contingent liability
   Outstanding amount of contingent liabilities (Letters of credit, guarantees, acceptances, others) at the beginning of the day is to be reported. However, the amount under this head will not be considered for calculation of net exchange position.

8. Spot/Cash Transactions of the day
   Spot transaction is single outright transaction involving the exchange of two currencies at a rate agreed on the date of the contract for value or delivery (cash settlement) within two business days. Cash transaction is the transaction involving the exchange of two currencies at a rate agreed where settlement takes place immediately (usually in the same day). These are to be reported under this head. To mention, cash settlement of forward transactions, settlement of near leg and far leg spot transaction of swap contracts (buy/sell as the case may be) shall be reported under this head ( Please see below) .

9. Forward transactions of the day

• Forward transactions involve the exchange of two currencies at a rate agreed on the
  date of the contract for value or delivery (cash settlement) at some future date (more than two business days).
• Swap Transaction is a combination of a spot and a forward transaction and involves a
  simultaneous purchase and sale of two currencies against each other.
• Forward transactions (alongwith those derived from swap transactions i.e. far legs of
  swap transactions) of the day under report with banks and customers are to be reported under the above head. However, sales, purchases and settlement of such transactions are to be reported under different heads as stated in the format.
• Settlement of Swap Transactions
  Transactions derived from swap contracts are to be reported simultaneously under sl. no. 2 (Spot transactions) and 3(Forward Transactions) of the exchange position statement. The near leg spot transaction of the currency is to be reported under sl. no. 2 while far leg of the swap contract is to be reported in sl. no. 3.A1 of the exchange position statement under the head of forward transactions (purchase or sale as the case may be). On maturity, the far leg transaction is to be reported under spot (buy/sell) as reversal of the previous one and to neutralise the forward book position, the settled transaction amount shall be shown as forward purchase/forward sale settlement under the respective head in sl. no. 3.A2

4. Issuance and settlement of contingent liabilities during the day
   Issuance and settlement of contingent liabilities during the day (which shall be excluded for calculation of foreign exchange exposures) like letters of credit and letters of guarantee, are to be reported under this head.

5. Total spot position of the day
   It is the sum of the opening spot position at the beginning (A.iii) and the spot transactions during the day as well (2.D).

6. Total forward position of the day: It is the sum of the opening forward position of the day
   (1.B) with net forward transactions of the day (3.A1) less net settlement of outstanding forward transactions during the day (3.A2).

7. Total currencywise net exchange position of the day
   Net Exchange position in a currency is the sum of spot position (Row 5) and forward position (Row 6) in the respective currency.

8. Total of the Net Long Positions ( Column 11) and Total of the Net Short Positions
   (Column 12) in equivalent US Dollar
   The sum of the net exchange positions of the currencies as indicated in Row 7, having long position shall be reported at Row 8 and Column 11 of the matrix. On the other hand, the sum of the net exchange positions of the currencies as indicated in Row 7, having short position shall be reported at Row 8 and Column 12 of the matrix with ‘ –’ (minus) sign.

9. Overall Net Exchange Position in equivalent US Dollar
   The overall net exchange position of the bank will be the ‘total of the net long positions’ or the ‘total of the net short positions’ (as indicated in Row 8) whichever is higher. Overall net exchange position thus arrived in equivalent US Dollar shall be reported at Row 9 and Column 13 of the matrix.

10. Overall Net Exchange Position in equivalent BDT
    Overall net exchange position in equivalent BDT will be reported at the Row 10 and Column 13 of the matrix.

11. Conversion Rate (Equivalent Taka)
    The conversion rates ADs to convert various currencies (USD, EURO, JPY GBP etc. applied by the ADs) are to be reported here (equivalent BDT per respective foreign currency.) To convert currencies, ADs are advised to use weighted average rate of USD/BDT as declared by FRTMD of Bangladesh Bank or BAFEDA.