Currency risk

Currency risk is defined as the risk that changes in foreign currency exchange rates have an adverse effect on the value of FMO's financial position and future cash flows.

Limits have been set on currency positions and are monitored on a daily basis. Currency risks are managed by matching the currency characteristics of the company's assets and liabilities, using derivative instruments such as (cross-) currency swaps and currency forwards. Equity investments are excluded from the currency position as the size and the timing of the cash flows are uncertain. With respect to equity investments, the expected returns in local currencies are assessed in terms of their sufficiency to compensate for the currency risk. Reference is made to the previous paragraph on equity risk.

Since 2006, FMO has increasingly offered loans in emerging market currencies. This aims to better match the needs of local banks and corporates, thereby reducing their currency risk. At December 31, 2011, 15% (2010: 14%) of the net loans to the private sector were in emerging market currency. The emerging market currency loans are swapped to US dollars via either commercial parties or via The Currency Exchange Fund (TCX Fund N.V.); as a result, FMO's open emerging market currency position of the investment portfolio, apart from equity, is limited. Local currency exposure of non-exotic currencies is hedged via commercial counterparties.

Currency risk exposure (at carrying values)

At December 31, 2011	€	US $	¥	Other	Total
Assets
Banks	28,050	12,054	99	1,911	42,114
Short-term deposits	315,745	177,321	-	5,721	498,787
Derivative financial instruments1)	325,939	-999,868	785,806	222,185	334,062
Loans to the private sector	252,372	1,883,031	-	386,709	2,522,112
Loans guaranteed by the State	33,041	29,509	-	-	62,550
Equity investments	157,036	499,588	-	96,742	753,366
Investments in associates	7,456	26,387	-	8,230	42,073
Interest-bearing securities	671,578	-	-	-	671,578
Tangible fixed assets	3,599	5,784	-	-	9,383
Deferred income tax assets	3,682	-	-	-	3,682
Current income tax receivables	4,560	-	-	-	4,560
Other receivables	11,966	15,777	-	5,153	32,896
Accrued income	29,518	30,667	6,529	15,402	82,116
Total assets	1,844,542	1,680,250	792,434	742,053	5,059,279
Liabilities and shareholders' equity
Short-term credits	536,855	20,805	-	-	557,660
Derivative financial instruments1)	-469,590	660,236	-	-124,608	66,038
Debt securities	22,429	-	-	-	22,429
Debentures and notes	655,990	450,703	785,777	763,641	2,656,111
Other liabilities	844	10,120	-	3,224	14,188
Current accounts with State funds and other programs	624	-	-	-	624
Wage tax liabilities	1,846	-	-	-	1,846
Deferred income tax liabilities	4,501	-	-	-	4,501
Accrued liabilities	16,740	16,590	6,529	15,240	55,099
Provisions	16,074	119	-	-	16,193
Shareholders' equity	1,664,590	-	-	-	1,664,590
Total liabilities and shareholders' equity	2,450,903	1,158,573	792,306	657,497	5,059,279
Currency sensitivity gap 2011		521,677	128	84,556
Currency sensitivity gap 2011 excluding equity investments and investments in associates		-4,298	128	-20,416

¹⁾ Fair value of individual components (e.g. individual swap legs) of derivative financial instruments is allocated to the relevant currency category.

At December 31, 2010	€	US $	¥	Other	Total
Total assets	1,601,455	1,018,341	760,045	925,221	4,305,062
Total liabilities and shareholders' equity	2,159,285	556,888	760,037	828,852	4,305,062
Currency sensitivity gap 2010		461,453	8	96,369
Currency sensitivity gap 2010 excluding investments in equity and associates		27,539	8	-25,471

 

Sensitivity of interest income and shareholders' equity to main foreign currencies

	At December 31, 2011		At December 31, 2010
Change of value relative to the euro1)	Sensitivity of income	Sensitivity of shareholders' equity2)	Sensitivity of income	Sensitivity of shareholders' equity2)
US $ value increase of 10%	-430	38,638	2,760	34,236
US $ value decrease of 10%	430	-38,638	-2,760	-34,236
¥ value increase of 10%	13	13	1	1
¥ value decrease of 10%	-13	-13	-1	-1

¹⁾ The sensitivities are illustrative only and employ simplified scenarios. The sensitivity of income and shareholders' equity to possible changes in the main foreign currencies is based on the immediate impact on the financial assets and liabilities held at year-end, including the effect of hedging instruments. 
²⁾ Shareholders' equity is sensitive to the currency sensitivity gap, excluding the equity investments valued at cost.