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Disclosures on risk exposure in derivatives

Disclosures on risk exposure in derivatives

(i) Qualitative Disclosure: Banks should discuss their risk management policies pertaining to derivatives with particular reference to the extent to which derivatives are used, the associated risks and business purposes served. The discussion shall also include:

f) the structure and organisation for management of risk in derivatives trading,

g) the scope and nature of risk measurement, risk reporting and risk monitoring systems,

h) policies for hedging and/or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/mitigants, and

i) accounting policy for recording hedge and non-hedge transactions; recognition of income, premiums and discounts; valuation of outstanding contracts; provisioning, collateral and credit risk mitigation.

(ii) Quantitative Disclosure: Quantitative disclosure with regard to currency and interest rate derivatives should be disclosed in notes to accounts stating:

a) The notional principal amount of derivatives both for hedging and trading.

b) Mark to market position separately for positive and negative marked to market position.

c) Credit Exposure.

d) Likely impact of one percentage change in interest rate on hedging and trading derivatives and maximum and minimum change in interest rate observed during the year.