Foreign Exchange Risk Regulation: Issues for Industrial and Developing Countries

December 1, 1994

Preview Citation

Format: Chicago

Philipp Hartmann. Foreign Exchange Risk Regulation: Issues for Industrial and Developing Countries, (USA: International Monetary Fund, 1994) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Capital adequacy regulations or quantity restrictions on bank portfolios put forward by the Basle Committee on Banking Supervision have virtually become an international standard of prudential regulation. Recent proposals aim at extending this approach to market risks, in particular to foreign exchange risk. The present paper provides a critical analysis of proposals to introduce foreign exchange position limits on a uniform cross-country basis, focusing on their effectiveness and their possible impact on the functioning of both mature and developing foreign exchange markets. Theoretical considerations are underpinned in the paper with descriptions of existing or proposed regulations, in a broad range of both industrial and developing countries. Experiences with the use of foreign exchange position limits in developing countries provide insight into their widespread use for other than prudential purposes, in particular to support exchange rate and exchange control policies.

Subject: Banking, Currencies, Currency markets, Exchange rate risk, Financial markets, Financial regulation and supervision, Foreign exchange, Foreign exchange transactions, Money

Keywords: Baltics, Capital charge, Capital position, Capital ratio, Capital requirement, Central and Eastern Europe, Currencies, Currency markets, Deutsche mark, Eastern Europe, Equity capital, Exchange rate risk, Foreign exchange risk regulation, Foreign exchange transactions, Forex market, Global, Long position, Middle East, Risk proposal, Risk regulation, Short position, Single currency, Spot market, Tier 1, WP

Publication Details

Pages:

54
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1994/141
Stock No:

WPIEA1411994
ISBN:

9781451928129
ISSN:

1018-5941

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