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.