Currency risk management in the bank

Abstract

The importance and actuality of the theme is characterized by the fact that at the base of every entity, be it commercial or non-commercial, private or public, financial, there are resources, whether they are in foreign currency or the national currency. In addition, thanks to their correct management by using the most efficient technologies and well-structured policies, it will be possible to avoid and minimize any risk. Currency risk represents the probability of suffering a loss or non-realization of the forecasted profits due to the variation of the exchange rate on the market, in a direction unfavorable to the adopted position. Currency risk in the bank can occur at any time because it cannot be predicted. That is why each bank practices different methods to prevent this risk. In order to protect against possible future losses, the bank must create a complex evaluation system. The development of such a system is related to conducting multiple researches. Exchange rate fluctuations negatively influence any activity, including bank activity. Each bank is oriented towards minimizing or eliminating this exchange rate risk by using different well-determined methods that will contribute to the stability of the exchange rate. The purpose of the research is to highlight the aspects that comprise the management of foreign exchange risk in the bank, the methods used regarding the effective management of the existing foreign exchange risk, the characterization of foreign exchange risk management strategies.