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……………..

FE Circular 07, Date: 15/04/2010, Annexure-C 1 of 6 • 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. 

FE Circular 07, Date: 15/04/2010, Annexure-C 2 of 6 • 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:

FE Circular 07, Date: 15/04/2010, Annexure-C 3 of 6 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 

FE Circular 07, Date: 15/04/2010, Annexure-C 4 of 6 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. 

FE Circular 07, Date: 15/04/2010, Annexure-C 5 of 6

1. 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.    
2. 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) . 
3. 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). 

FE Circular 07, Date: 15/04/2010, Annexure-C 6 of 6 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.