Barclays 2012 Annual Report Download - page 162

Foreign exchange risk (audited)
The Group is exposed to two sources of foreign exchange risk:
a) Transactional foreign currency exposure
Transactional foreign exchange exposures represent exposure on banking assets and liabilities, denominated in currencies other than the
functional currency of the transacting entity.
The Group’s risk management policies prevent the holding of significant open positions in foreign currencies outside the trading portfolio
managed by the Investment Bank which is monitored through DVaR.
There were no material net transactional foreign currency exposures outside the trading portfolio at either 31 December 2012 or 2011. Due to the
low level of non-trading exposures no reasonably possible change in foreign exchange rates would have a material effect on either the Group’s
profit or movements in equity for either of the years ended 31 December 2012 or 2011.
b) Translational foreign exchange exposure
The Group’s investments in overseas subsidiaries and branches create capital resources denominated in foreign currencies principally US Dollar,
Euro and South African Rand. Changes in the Sterling value of the investments due to foreign currency movements are captured in the currency
translation reserve, resulting in a movement in Core Tier 1 capital.
The Group’s strategy is to minimise the volatility of the capital ratios caused by foreign exchange movements, by using the Core Tier 1 capital
movements to broadly match the revaluation of the Group’s foreign currency RWA exposures.
During 2012, total structural currency exposures net of hedging instruments decreased from £16.7bn to £16.3bn, as a result of hedging decisions
taken in accordance with the Group’s capital ratio management strategy for foreign exchange rate movements.
The economic hedges primarily represent the US Dollar and Euro preference shares and reserve capital instruments in issue that are treated as
equity under IFRS, and do not qualify as hedges for accounting purposes.
Functional currency of operations (audited)
Foreign
currency
net
investments
£m
Borrowings
which hedge
the net
investments
£m
Derivatives
which hedge
the net
investments
£m
Structural
currency
exposures
pre economic
hedges
£m
Economic
hedges
£m
Remaining
structural
currency
exposures
£m
As at 31 December 2012
US Dollar 35,280 6,251 13,861 15,168 4,822 10,346
Euro 5,369 1,494 1,990 1,885 1,951 (66)
Rand 4,048 – 131 3,917 – 3,917
Japanese Yen 597 175 407 15 – 15
Other 3,084 – 1,027 2,057 – 2,057
Total 48,378 7,920 17,416 23,042 6,773 16,269
As at 31 December 2011
US Dollar 30,335 7,217 8,094 15,024 5,072 9,952
Euro 6,568 4,096 280 2,192 2,017 175
Rand 4,258 – – 4,258 – 4,258
Japanese Yen 681 293 336 52 – 52
Other 3,144 – 930 2,214 – 2,214
Total 44,986 11,606 9,640 23,740 7,089 16,651
barclays.com/annualreport160 I Barclays PLC Annual Report 2012
Risk review
Market risk continued