RISKMANAGEMENT

RISKMANAGEMENT
For management of risk, the bank concerned has to frame a details policy, fix specific limit structure for various risks and
operations, a sound management information system and specified control, monitoring and reporting process.
The process of risk management begins from the Board of Directors, which approves a policy for management of various types
of risk which a bank may be exposed to.
The risk management policy of a bank should cover the goals and objectives, delegation of powers and responsibilities,
activities to be undertaken, level of acceptable risk, authority to undertake such functions and system of review.
In India, RBI issued ICG i.e. Internal Control Guidelines for foreign exchange business covering dealing room operations, code
of conduct for dealers, brokers, set up of the dealing room, back office and risk management structure.
According to these guidelines, the banks are required to fix limits on exposures as under:
 Overnight limit : The maximum amount a bank can keep overnight when the markets in its time zone are closed.
 Daylight limit : It is the maximum amount the bank can expose itself at any time during the day, for meeting the needs of
the customers and also its own trading operations.
 Gap limit : It is the maximum inter-period exposure that a bank can take.
 Counter party limit : The maximum amount that a bank can expose itself to a particular party (called counterparty)
 Country limit : It covers max exposure on a single country.
 Dealer limit : This is the maximum amount that a dealer can keep exposed during the operating hours.
 Stop loss limit : This is the maximum loss limit for adverse movement of rates.
 Deal size limit : This is the maximum amount of size of a deal that can be made to restrict operational risk on large size deals.
 Settlement risk :Maximum amount of exposure to any entity, maturing on a single day.