The cash position of the company. Catalog: net cash position
A cash position is the amount of cash that a company, investment fund or bank has in its books at a particular point in time. The cash position is a sign of financial stability and liquidity. In addition to cash, this position often takes into account highly liquid assets, such as certificates of deposit, short-term government debt and other cash equivalents.
BREAKING DOWN "Cash Position"
cash position refers specifically to the level of the organization's cash in relation to its expenses and liabilities. Internal stakeholders look at the cash position as often as daily, and external investors and analysts look at the organization's cash position in their quarterly cash flow statement. A stable cash position is one that allows a company or other company to cover its current liabilities with a combination of cash and liquid assets.However, when a company has a large monetary position above and above its current liabilities, this is a powerful signal of financial stability. This is because cash is needed to finance growing operations and pay off liabilities. However, too large a cash position can often signal a waste, since the funds generate very little profit.
Other organizations, such as commercial and investment banks, as a rule, should have a minimum cash position, which is based on the amount of funds that it has. This ensures that the bank has the ability to pay the owners of their accounts if they require financing. When an investment fund has a large monetary position, it is often a sign that it sees few attractive investments in the market and sits comfortably on the sidelines.
Cash and liquidity ratios
An organization's cash position is usually analyzed by liquidity ratios. For example, a current ratio is defined as the current assets of a company divided by its current liabilities. This measures the organization’s ability to cover its short-term obligations. If this ratio is greater than one, this means that the company has sufficient cash to continue working.
A cash position can be found by looking at the company's free cash flow (FCF). This FCF can be found by taking the company's operating cash flow and subtracting its short-term and long-term capital costs.
Monetary example
External analysts often look at the company's FCF to evaluate its effectiveness. For example, Chase Corp. as of July 14, 2016 it has FCF, which is 40% higher than its net profit, which represents an FCF yield of 7.2%. This means that its available FCF is $ 34 million per year, which is expected to be used to cover Bank of America's line of credit.
Unified Cash Position (UPL) is a modern service with great margin trading capabilities, available in our MATRIx trading system. The EDP has replaced the strict division of the brokerage account into several trading floors, but if desired, the client can open separate accounts, the balances of which will not be taken into account in the Unified Cash Position.
Together with the Unified Monetary Position, you will have a single Money account (MO), which can be used on several trading floors at once:
- Moscow Exchange Stock Market (all instruments traded in T + 2 mode)
- Derivatives Market of the Moscow Exchange (futures, options)
- Currency market and precious metals market of the Moscow Exchange (non-delivery mode)
- Foreign Securities Market of St. Petersburg Exchange
Assets that were purchased on one trading floor of the market, you can use as collateral in other markets included in a single cash position.
In addition to personal accounts, which are included in the EDP and are combined within one money account with the suffix - MO (Money), in the MATRIx trading system there may be personal accounts (portfolios) not included in the EDP. Old suffixes are preserved for them. Assets in these accounts cannot serve as collateral for transactions in other accounts. Including the accounts included in the EDP.
A single monetary position is convenient because:
You have access to a single risk management for all trading floors.
You have the option of balancing risk on correlated instruments.
Amounts of collateral and transaction costs will be lower.
You will be able to use previously inaccessible arbitrage operations.
The size of the “shoulder” will be increased.
You do not need to transfer funds between sites included in the Unified Cash Position.
Example 1: Decrease in guarantee coverage. The shares of LKOH (NK Lukoil OJSC) purchased with “their own money” (without “leverage”) are security for the position on the RTS Index futures contract.
Example 2: Risk balancing for correlated instruments. Purchased shares of SBER (Sberbank PJSC) provide a short position for the SBRF-6.18 futures contract (June futures for shares of Sberbank PJSC) and form an arbitration pair, the risks of which balance.
Example * Purchase of 100 SBER shares and sale of 1 SBRF-6.18 futures contract
The cost of shares: 21,426 rubles. The initial margin for opening a position is 9,411 rubles.
The value of the futures contract: 21,719 rubles. GO - 4 202 rubles.
Settlements on trading floors, which are part of the EDP, occur on a single account MO.
In the trading system, the amount of cash balance that can be used as security for applications for the purchase of bonds during the course of trading.
- - interpretation of the role of money as a value shell of real processes ...
Big economic dictionary
- - Part of the money supply, which is recognized as reserves of the banking system ...
Economic vocabulary
- - the statement that the reduction in money supply is the cause of most economic crises. Proponents of this hypothesis are A. Schwartz and M. Friedman ...
Economic vocabulary
- - interpretation of the role of money as a value shell of real material processes ...
- - The cash position of the dealer in the Trading System is the amount of cash balance that can be used as security for applications for the purchase of bonds during trading ...
Dictionary of Depository Terms
- - The set of rights and obligations of a Section Member arising from the conclusion of a purchase / sale transaction for one fixed-term instrument of this series. The position in its direction can be long or short ...
Dictionary of Depository Terms
- - this is a money circulation device in a given country, enshrined in law and providing for the bringing of various elements of money circulation into a certain unity ...
Glossary of business terms
- - the money supply in circulation, including cash, accounts and reserves of commercial banks and other financial assets ...
Glossary of business terms
- - The position of a broker engaged in trading in securities, as well as exchange goods, currency, etc., in which his sales of securities exceed his available volume of securities ...
Glossary of business terms
- - the money supply in circulation, including cash, accounts and reserves of commercial banks and other financial assets. In English: Monetary base also: Monetary aggregates & nbsp ...
Financial vocabulary
- - in the Russian Federation - a monetary aggregate, including investments by depository institutions in cash that can be used to cover reserve requirements ...
Financial vocabulary
- - in the Russian Federation - the amount of cash in circulation M0 and balances in national currency on settlement networks and deposits of non-financial enterprises, organizations and individuals who are residents of the Russian Federation. The unit M2 does not ...
Financial vocabulary
- - an independent component of the money supply ...
Big economic dictionary
- - The situation when dealers in the markets for goods, currencies or securities hold such securities that they do not currently plan to sell, as they speculate on increasing them ...
Economic vocabulary
- - an article of the asset balance sheet of companies in a number of countries, showing the amount of money in cash and on bank accounts. The size of this article is determined by economic necessity and is reduced to a possible minimum ...
Great accounting dictionary
- - ....
Encyclopedic Dictionary of Economics and Law
"MONEY POSITION" in books
Monetary reform
From the book Notes of the Minister the author Zverev Arseniy GrigorievichMonetary reform Place of synchronicity. - Early call. - Conversation in T-bills. - Absolute secrecy. - Reform has come. - Grants. - The price of the gold ruble. The war causes damage of three kinds. Some of its consequences can be eliminated relatively quickly by restoring, for example,
MONEY REFORM
From the book Ekaterinburg - Vladivostok (1917-1922) the author Anichkov Vladimir PetrovichMONETARY REFORM Shortly before Easter, I again went to Omsk. This time I came to I. A. Mikhailov as my immediate superior. My approval as a member of the board of the Minister of Finance has already taken place. True, the council itself was not yet formed by Mikhailov, but I.
MONEY REFORM
From the book 10 crazy years. Why did not reform take place in Russia the author Fedorov Boris GrigorievichMONETARY REFORM Due to the wretchedness of economic thinking, the USSR and Russia always had a semi-mystical attitude to monetary reform as a means of solving all problems. The Stalinist confiscation reform of 1947 became especially firmly entrenched in the social mythology of our country.
47. US monetary system
From the book Money. Credit. Banks [Answers to exam tickets] the author Varlamova Tatyana Petrovna47. The US monetary system One of the features of the US monetary system was the continued existence of bimetallism (until 1900, when the gold standard act was issued, which approved the gold dollar as the country's monetary unit). A characteristic feature of the US monetary system
51. Monetary reform
From the book Money, credit, banks. Cheat sheets the author Obraztsova Lyudmila Nikolaevna51. Monetary reform If denomination and devaluation can completely or partially eliminate certain shortcomings in the monetary sphere, but not their causes, then monetary reform has a radical effect. This is a set of measures aimed at the transition to sustainable
Monetary policy
From the book Where does the ruble strengthen? the author Smirnov Alexander VladimirovichMonetary policy Monetary policy is a powerful tool for managing the economy. Everything is very simple - “reap what you sow.” Those countries that clearly set the task of modernization and approached it carefully, were able to achieve success. All world leaders
US MONEY
From the book Money. Credit. Banks: lecture notes the author Shevchuk Denis AleksandrovichUS MONEY SYSTEM One of the features of the US monetary system is the long existence of bimetallism, which was supported not only by influential US mines in silver mines, but also by a wide range of borrowers - small and medium-sized industrialists and farmers,
Money trap
From the book Cash Flow Quadrant the author Kiyosaki Robert ToruMoney Trap Success in quadrants B and I requires specific knowledge on how to handle money. Rich dad called this knowledge financial intelligence and said that this concept defines not so much how much money you make, but how much
20. Money supply
the author Sherstneva Galina Sergeevna20. Money supply Money supply is an absolute indicator of financial statistics, with the help of which the amount of money in circulation is estimated. Money circulation is the movement of money in cash and non-cash forms in domestic circulation during the circulation of goods,
21. Money emission
From the book Financial Statistics the author Sherstneva Galina Sergeevna21. Money emission The most important place among the basic proportions that ensure the normal functioning of a market economy belongs to maintaining a certain ratio between the sum of prices for goods and services and the mass of money in circulation. Process
IV. MONETARY RENT
From the book Capital. Volume Three author Marx KarlIV. MONETARY RENTAL By rent we mean here, in contrast to industrial or commercial land rent, which is based on the capitalist mode of production and represents only an excess of average profit, land rent arising from
79. MONETARY REFORM. ATTEMPTS TO TRANSFORM ECONOMY. V. S. PAVLOV AND MONETARY REFORM
From the book Cheat Sheet on the History of Economics the author Engovatova Olga Anatolevna79. MONETARY REFORM. ATTEMPTS TO TRANSFORM ECONOMY. V. S. PAVLOV AND MONETARY REFORM At the end of 1990, the head of government was the former Minister of Finance in the Government, N. I. Ryzhkova, V. S. Pavlov, who represented the interests of conservative economic and political circles and
Cash benefit
From the book Generator of new customers. 99 ways to mass attract customers the author Mrochkovsky Nikolay SergeevichMonetary gain Monetary gain is a very important factor. But you need to work with him wisely. If you arrange sales, promotions, discounts, contests - this is great, but this should be done infrequently. If you are trying to attract customers with perpetual sales - nothing good from
Money machine
From the book Quick Money on the Internet the author Parabellum Andrey AlekseevichMoney machine You need to understand that with affiliate programs you still work on statistics. If you send one person five links to five different affiliate programs, then later you will say: “No, something did not work. Partnerships are nonsense. You can’t make money on it. ”Naturally,
Money Mantra
From the book of 150 rituals to attract money the author Romanova Olga NikolaevnaMoney mantra Aum - namo - dhanadaye - matchmaker This mantra is universal. Its regular repetition will help to find
Trading on the stock exchange in the 21st century is an extremely high-tech process. In order for the investor to be able to complete the transaction, various trading terminals are developed, brokerage systems are created that can cope with the heavy load, APIs are implemented for them, high-speed communication channels are laid, new technologies are put into operation, etc. This is not surprising - after all, between success and failure, profit or loss in the stock market is often only a fraction of a second. Therefore, everything should work like a clock and very quickly.
We have already talked about direct connection technologies that are used to send trading orders directly to the exchange, bypassing the broker system. However, direct access costs a lot of money and not all traders who, however, want to make transactions with maximum speed, can afford it. In this topic, we will talk about how we carried out a full upgrade of our trading system, which allowed us to create an infrastructure product that meets international standards of stock market technologies.
Welcome to the matrix
ITinvest has always been not just a broker that provides customers with the opportunity to trade on the exchange, but also a technological developer of products for trading. Our founders are people who have experience in programming and in general have always been associated with technology. Therefore, the development of our own software products has always been part of the company's strategy.Money and time have always been invested in this. As a result, at the beginning of the 2000s, its own it-trade system was created, which included modules for processing trade orders, a middle and back office, as well as a digital signature system to ensure security. In addition, we have created a line of our own trading terminals. One of them - SmartTrade has become very popular in the Russian market and, in principle, still remains a reliable and convenient means of introducing trading orders to the market and analyzing the market itself. Clients could carry out trading operations using the web interface.
The system has been operating for more than 13 years and the entire set of software products is objectively outdated. It was becoming increasingly difficult to maintain and develop their functionality (there are more than 1 million lines of code in one SmartTrade terminal), in addition, the architecture itself also ceased to meet modern requirements - we had two trading racks with servers, and in order to develop the company’s business, the number had to be increased, which would entail problems with controllability and synchronization.
As a result, all the efforts were spent on maintaining and normal functioning of the shopping complex, and there was no talk of developing new products. Requirements for the speed of work and its quality were constantly growing, and it became increasingly difficult to meet them in the framework of the old architecture and paradigm. In addition, the “old” trading system had one weak link - its core, a risk management system (RMS) which basically could not be parallelized and duplicated. Accordingly, its failure could stop the trade.
All this put us before the need to create a new trading system that would meet the best world standards. Due to its matrix structure, and also due to the fact that the matrix theory apparatus was used in calculating risks, the new system is called MatriX, that is, the “Matrix”.
Architecture
If in the brokerage system of the previous generation, clients received all exchange data (orders, transactions, account status, etc.) by connecting to a single access server, then in the Matrix project it was decided to divide these data flows into two main “banks”: accepting applications (Order Mamagemegent Servers - OMS), and servers that supply customers with market data and account information.The complex’s hardware uses PowerEdge server blades and Dell PowerVault storage systems.
Technology and iron
In addition to architecture, the quality of the brokerage trading system depends on the quality of the software that implements the main functions, as well as on the reliability of the iron on which it works. In order to be sure that our product really complies with international standards, tenders were held among suppliers of both iron solutions and software developers.As a result, Dell provided the iron part of the new system, and IBM supplied us with the software (and some hardware).
Dell PowerEdge Servers
Under each of these balancing servers there are several more servers that solve local problems. Client connections are distributed between them so that each server receives the same load.
Our servers are connected to each other and to the exchange trading system using a special high-speed bus built on IBM Data Power X75 servers and MQ Low Latency Messaging software.
Interesting fact: MatriX project is the first case of using these servers in Russia. By the way, even some problems were associated with this - the United States recognizes these technologies as having a dual purpose. That is, there is a possibility that someone will use them for military purposes. Due to the delays associated with all this, the delivery time for the equipment has shifted by as much as six months - and we are fortunate that the famous Jackson-Vanik amendment was canceled, otherwise it is not known how it all turned out in the end.
Behind this bus are servers of exchange gateways. Through which one to send a specific application, or from which one to take data, the bus decides on its own. In principle, this is sufficient for the normal functioning of the entire system, but we also added a risk management server to it, which, unlike the previous system, is now not the central link, and any problems with it do not cause the entire system to stop.
Another innovation is the so-called FIX server, which allows you to connect applications written under the FIX protocol to the MatriX TS. We will talk more about this decision in a separate topic.
The final system architecture looks like this:
What did it give?
Such a “matrix” approach to the construction of the system made it possible to reduce the damage from possible failures (failure of a particular link does not lead to irreversible consequences), and also makes it easy to scale the system in the future. Most importantly, the speed of work has dramatically increased. Now the processing speed of the application in the system is from 500 microseconds to 2 - this is a very good result. The total time it takes for an application to go from the moment it enters the Matrix to its withdrawal to exchange systems is from 2 to 5 milliseconds (excluding losses on communication channels to the system) - this is about 40/50 times faster than in the previous generation system it- trade | SmartTrade ...This is certainly not so important for hand traders, but for algorithmic traders using robots connected via API this is a significant advantage.
Among other advantages of the new trading system:
- Increased productivity (up to 2000 orders per second in one flow, more than 10 million orders per trading day).
- The already mentioned ability to access external systems through OMS-FIX 4.4 Gates.
- Single cash position (CU) and own risk accounting for client portfolios.
Single cash position
The single cash position service for customers has become one of the main “features” of the entire new trading system. Its essence is as follows:When working with the previous version of the it-trade / SmartTrade trading system, the client was provided with a separate personal account for each trading platform. For example, the Moscow Exchange Stock Market is an MS account; Derivatives Market of the Moscow Exchange - RF account; The currency market of the Moscow Exchange is an FX account (non-deliverable) or a CD account (deliverable) and others. With this separation, securities and cash located on one trading platform cannot serve as collateral for transactions on another.
When using a single cash position, the customer is provided with a single account with the identifier MO, which includes several trading platforms at once:
- Stock market of the Moscow Exchange (all instruments traded in T + 2 mode).
- Derivatives Market of the Moscow Exchange (futures, options).
- Currency market of the Moscow Exchange (non-delivery mode).
- London Stock Exchange section IOB (ADRs of Russian issuers).
The easiest way to understand the benefits of a single monetary position is with a simple example. If in the old it-trade trading system, for the purchase of 100 shares of Lukoil (LKOH), 43,800 rubles would have been required as collateral (the value of the share as of October 22, 2013 was 2030 rubles, the amount of collateral for the T + 2 market is 438 rubles, . 100 x 438 - 43500), and for the sale of 10 futures contracts on shares of the same issuer LKOH-12.13 (on the same date, 1 futures cost 20,650 rubles, security - 2,132 rubles) would be required 10 x 2132 \u003d 21320 rubles. In total, for two not very large transactions, the amount of funds required to secure the transaction would exceed 65,000 rubles.
In the new trading system, 26,746 rubles would be equal. The difference is quite significant - it turns out that you can more flexibly dispose of your own funds, they can work, and not stand idle in a condition locked in as security.
Need for Speed
A single monetary position, as you might guess, with all its advantages can be of interest to traders and traders of any type - from investors who do not do many transactions to scalpers who do not take their fingers off the keyboard.At the same time, it is obvious that the speed advantages of the Matrix trading system are most attractive for high-speed traders (HFT-traders) who trade on the exchange using mechanical trading systems. It is this type of traders that “makes” most of the turnover of all popular exchange platforms. Such traders play a large role in the stock market ecosystem (read more about trends and prospects of algorithmic trading in our special topic). But no algorithmic trading strategy, even the most successful in theory, can work normally in practice if the proper quick action is not provided.
Therefore, both exchanges and brokers are constantly engaged in the development of their own infrastructure - in 2010 alone, over $ 2 billion was spent on technical re-equipment by exchanges, telecommunications companies, algorithmic hedge funds, corporate and private algorithmic traders to upgrade their trading world.
Domestic stock exchanges (in particular, the Moscow Exchange) also follow this trend. If in 2010 the execution time of orders in the trading systems ASTS (MICEX stock market) and FORTS (RTS derivatives market) were 5-15 and 15-50 ms, respectively, then already in 2013 the figures were 0.700 ms and 3-5 ms. Now, the execution time of applications in the core of the exchange system does not exceed 50 microseconds.
When looking at all these efforts, it is clear that brokers simply do not have the right to lag, so further upgrade and improvement of this link in the chain that the application goes along the way from the user to the exchange is simply inevitable.
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When making a money transaction, the bank acquires 1 hard currency and implements another. In a deal with an immediate supply of hard currency, this means investing its resources in hard currency, which it implements. Once the bank takes a position for a period, then, buying a claim in a certain currency, it perceives a promise in a different currency. As a result of these operations, two different currencies arise in the bank's assets and liabilities, in currency form or in the form of obligations, the exchange rate of which changes independently among themselves, leading to the fact that at an obvious moment it can exceed the liability, forming, or vice versa.
The conformity of the claims and obligations of the bank, including its off-balance sheet operations, in foreign currency characterizes its monetary transaction. In case of their equal rights on a certain hard currency, the monetary position is considered to be closed, and if there is a mismatch, it is open. An open cash position can be short, as long as the promises on the sold currency exceed the assets and claims in it, and long as the assets and claims on the purchased currency exceed liabilities and liabilities. With a long one, the trader, in anticipation of the appreciation, buys the base currency. Among other things, it will be considered that there is an open long position in a certain foreign currency foreign currency, since at equilibrium in possession there is an asset denominated in this foreign currency, for example, acquired Eurobonds.
In the same way, the bank will have a long transaction in the American dollar, if there are no borrowed funds in this currency, including population contributions and corporate account balances, the bank has issued loans denominated in United States dollars. With a short position, in anticipation of a depreciation, the base currency is being sold. Among other things, it will be considered that there is a position for sale in this foreign currency, since there is a liability, for example, loan promises denominated in dollars. For a sample with a bank, the position will become short when, in the absence of loans issued, balances on correspondent accounts nominated in hard currency, the bank has borrowed funds nominated in it, for example, deposits. Following the implementation of negotiable sales for a long position or negotiable repurchase for a short position, or if the assets in a certain foreign currency become the same liabilities in the same foreign currency, they say that the cash position is closed.
A short cash position can be reimbursed by a long position, if the size, term of the transaction and the hard currency of these positions are similar. This principle is important because an open monetary position is associated with the risk of bank loss when, by the episode of counter-transaction, in other words, the purchase of a previously sold hard currency and the sale of a previously acquired hard currency, the foreign currency data rate will change in an unfavorable direction. As a result, the bank will be able to either obtain the lowest required amount of hard currency by counter-transaction than it previously sold, or it will be obliged to pay for the same necessary amount a larger equivalent before the acquired hard currency. In two versions, the bank bears spending its funds related to changes in the monetary rate. It is present constantly in the presence of open positions, both long but also short.
Since an open monetary position is created according to certain hard currency, in the process of constant operations of the bank in the currency market, monetary positions constantly appear and disappear. A change in the amount of a cash position occurs, as was noted earlier, using the configuration of the amounts of liabilities and assets in hard currency. The change in assets and liabilities, moreover, happens with the help of specific current cash transactions, and operations related to the movement of money.
The occurrence of losses or gaining profit will depend on the direction of the exchange rate configuration and on whether the bank is present in a net long or net short position in foreign hard currency. The net position is guided by the method of adding up all net positions taking into account the symbol, in contrast to the calculation of monetary risk, where the symbol of the position is not provided. If the bank has a long transaction in foreign currency, the revaluation will cause a profit when the hard currency rate rises and losses, once the hard currency rate falls. And, on the contrary, the selling position will provide the basis for the benefits when the foreign exchange rate of foreign currency decreases, and to losses when the rate of foreign currency exchange rate rises. Banks constantly monitor the change in monetary position, set a limit for any partner bank, considering the monetary risk and the likely outcome if it is immediately fully covered at available cash rates. This task is complicated by the fact that the cash transaction includes cash and urgent transactions, absolute at different times at different rates.
The total cash position is positive for the bank if it held a long trade in foreign currency, the rate of which increased. But one hundred percent to realize this success is possible only when closing all cash positions at current rates. This operation is called the realization of benefits and traditionally happens during periods of intense trend of hard currency, stopping its movement, and from time to time changing its dynamics in the opposite direction.
The creation of currency positions throughout the day is justified by conducting arbitrage cash transactions in time and can be excluded by the simultaneous covering of any transaction with a counter transaction. But big banks resort to counter-deals exclusively during the global crisis. Maintaining long or sell positions in some currencies for several days or weeks is regarded as monetary operations, since if short-term arbitrage positions can be considered the result of requests from the bank's clientele, long-term maintenance of an open monetary position is a responsible action aimed at benefit from changes in rates.
Analysis of the currency position of the bank and how to adjust it
The work of banks in the money markets is associated with the management of assets and liabilities in foreign currency, monetary risks that arise on the introduction of different currencies during banking operations. Currency risk - this is the risk of loss or loss of profit in the state currency associated with the negative configuration of the exchange rate. In addition, risk is the possibility of losses or additional costs during the execution of a monetary transaction, stimulated by the lack of analysis of this transaction with a monetary asset, miscalculation or unforeseen situations in general. Currency risk is considered a type of monetary risk, therefore, when evaluating it, the same informants are used, in fact, when assessing the unified state of the bank, on the one hand, and in general, an adequate assessment of the bank's monetary situation is not possible in the absence of a separate monetary risk assessment.
A cash position appears on the date of the decision to purchase or sell foreign currency and other cash assets, as well as the date of crediting to the account, debiting from the account of profits or expenses in foreign currency. The indicated dates also characterize the date that the corresponding configurations reflect the value of the open cash position. The value of the open cash position is guided by reliable accounting information, reflecting the claims to acquire and promises to deliver funds in designated currencies both for transactions completed in real settlements on the reporting date, but also for transactions for which settlements will be completed later, after the reporting date . Traditionally, the value of the cash position is calculated using hard currency for an explicit period relative to the state hard currency. In case of active participation in international operations, the bank needs to keep track of open positions in the respective currencies.
These positions demonstrate at any time incomplete transactions in a specific foreign currency, regardless of the timing of transactions. Estimation of the likely outcome of closing an open position is achieved by recalculating all sums of long and selling positions in the national currency at the current rate at which all transactions are likely to be covered, taking into account the terms of delivery of the foreign currency on urgent operations, in other words, the date of execution of the terms of the transaction. This recalculation is carried out in 2 steps: at first, all positions are recalculated to the more widespread foreign currency, for example, the dollar, then the dollar amounts or their total - to the national currency.
Foreign exchange position factors
Operations that have a major impact on the change in monetary position include:
- receiving interest and other earnings in foreign currencies;
- payment of interest and other costs in foreign currencies;
- for the purchase of own funds in foreign currencies;
- conversion operations with the immediate delivery of funds, not later than 2 business banking days from the date of the transaction, and their delivery for a period exceeding 2 business banking days from the date of the transaction, including cash foreign currency transactions;
- urgent operations, including forward and futures transactions, settlement forwards, "" transactions, options, on which claims and promises appear in foreign currency freely regardless of the method and form of settlement for these transactions;
- other operations in foreign currency foreign currency and transactions with other monetary values, not counting precious metals, including derivatives of the currency market, even exchange ones, if, under the terms of these transactions, the exchange is taken into account in some form, in other words, the conversion of foreign foreign currency or monetary values, not counting precious metals;
- acquired irrevocable guarantees nominated in a foreign currency. They are included in the calculation of the open cash position from episode 1 of non-payment of the loan, in the collateral of which it was received;
- issued irrevocable guarantees nominated in foreign hard currency. They are included in the calculation of an open monetary position from the stage when, according to a targeted assessment of an authorized bank, it becomes possible for the beneficiary to submit claims for payment of the currency amount.
Banks will try to hold long cash positions in powerful currencies, especially when they expect an increase in their exchange rate, and sell positions in weak currencies. In the event that unexpected changes in monetary rates occur: a powerful hard currency will fall in price, and a weak one will rise in price, then the bank will likely spend its funds, which it will have the opportunity not to mark, but wait until the long-term foreign currency hard currency rises again and the short-term foreign currency to close the open position with a profit.
To avoid monetary risk, it is necessary to coordinate assets and liabilities for any freely convertible currency, also strive to form a blocked position for any foreign currency at the end of the period, or it is possible to compensate for the imbalance of assets and liabilities in foreign foreign currency by not matching the size of the sold and acquired foreign currency, thereby reducing the monetary risk to zero, following the principle: a position for sale in any hard currency can be reimbursed by a long cash position if the size, validity period and hard currency of these positions are similar. This principle is especially important because it specifically serves as the prototype of all methods of covering monetary risk.
The value of losses or incomes generated when the exchange rate changes, embodied in the state foreign currency, is oriented as the product of an open monetary position with a predetermined foreign currency to change the rate of the state foreign currency in comparison with that foreign currency, in other words, by adjusting the value of the monetary position, one can influence the value of losses.
The Bank is obliged to constantly review the state of an open monetary position solely for the purpose of monitoring compliance with the limits set by the Central Bank of the country for open monetary positions, and for the purpose of analyzing the possible spending of its funds and profits related to maintaining an open monetary position.
Ways to regulate the monetary risk of a currency position
There are 2 main ways to regulate monetary risk - this is limitation, indispensable and voluntary. Hedging is a method of adjusting monetary risk, based on the development of a compensating monetary position, in which there is selective or absolute compensation of the first monetary risk with another suitable risk. The restriction is a way to adjust the monetary position, based on the inalienable or voluntary limitation of the values \u200b\u200bof the bank's open monetary position in accordance with the established limits.
Hedging instruments are used by banks to adjust the values \u200b\u200bof open cash positions with the goal of completely closing, reducing or conducting these operations with foreign currency foreign currency, which will not lead to an upcoming increase in the value of a monetary position in a predetermined foreign currency or a group of currencies. The following are considered as hedging instruments of the bank’s open cash positions: the solution of different types of balancing immediate and cash transactions on purchase and sale of hard currency; premature refusal to perform, extension before the transaction; resolving transactions in the form of a “swap”, as well as conducting operations that are not associated with the exchange of one foreign currency for another; set off existing claims and obligations with one counterparty for the greatest reduction in monetary transactions by the method of consolidation.
The restriction, unlike hedging, is used both by banks, but also by bodies controlling it and consists in voluntary, on the part of the bank, or indispensable, prescribed by the body controlling, limiting the amount of the bank's open monetary positions in accordance with the established limits.
The more fundamental features of the quality of the process of managing the monetary position at the bank level include: the efficiency and accuracy of banking information systems; skill, knowledge, professionalism and commitment of management and personnel. This process must certainly be supported by adequate banking technology and rely on a faithful, reliable accounting system in a credit institution.
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