Dhaka, Bangladesh (BBN) - The central bank of Bangladesh has introduced a guideline to minimise operational risks of foreign exchange (FX) business with use of various tools and techniques.
“As a part of their business functions, all financial institutions engage in numerous complex financial activities for which they require to pay proper attention to every detail including the management of risk,” the Bangladesh Bank (BB) said in its guidelines on foreign exchange risk management on Tuesday.
Risk is defined as an event that can cause financial, physical or reputational loss or can commit the bank/business to an uncertain future.
And the types and degrees of risks an organisation may be exposed to depend upon a number of factors such as its size, complexity in business activities and volume, according to the guidelines.
It is believed that generally the risks banks face are credit, market, liquidity, operational, compliance / legal /regulatory and reputation risks.
However, a comprehensive foreign-exchange risk programme should deal with good management-information systems, contingency planning and other managerial and analytical techniques, the BB explained in its 67-page guidelines.
It is acknowledged that specific foreign-exchange risk practices may differ among banks, depending upon factors such as bank’s size, and the nature and complexity of its activities.
“With this view in mind, this document sets out the guidance for managing risks with regard to foreign exchange which the banks follow in determining their risk-acceptance criterion then for setting out various internal risk limits that should be subject to periodic reviews,” the central bank said.
BBN/SSR/AD