Barclays 2013 Annual Report Download - page 199

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 during 2013 or 2012. 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 2013 or 2012.
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 GBP value of the net investments due to foreign currency movements are captured in the currency
translation reserve, resulting in a movement in Common Equity Tier 1 Capital.
The Group’s strategy is to minimise the volatility of the capital ratios caused by foreign exchange movements, by using the Common Equity Tier 1
Capital movements to broadly match the revaluation of the Group’s foreign currency RWA exposures.
During 2013, total structural currency exposures net of hedging instruments remained stable at £16.2bn (2012: £15.7bn).
The economic hedges primarily represent the US Dollar and Euro preference shares and additional Tier 1 instruments that are held as equity,
accounted for at historic cost 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 2013
US Dollar 34,220 5,555 12,558 16,107 5,812 10,295
Euro 9,336 538 5,570 3,228 2,833 395
Rand 3,835 – 114 3,721 – 3,721
Japanese Yen 454 89 352 13 – 13
Other 2,850 – 1,101 1,749 – 1,749
Total 50,695 6,182 19,695 24,818 8,645 16,173
As at 31 December 2012
US Dollar 34,798 6,251 13,861 14,686 4,822 9,864
Euro 5,314 1,494 1,990 1,830 1,951 (121)
Rand 4,080 – 131 3,949 – 3,949
Japanese Yen 597 175 407 15 – 15
Other 3,040 – 1,027 2,013 – 2,013
Total 47,829 7,920 17,416 22,493 6,773 15,720
Pension risk review
The UK Retirement Fund (UKRF) represents approximately 91% of the Group’s total retirement benefit obligations globally. The other material
overseas schemes are in South Africa and the US where they represent approximately 5% and 2% respectively of the Group’s total retirement
benefit obligations. As such, this risk review section focuses exclusively on the UKRF.
Pension risk arises because the estimated market value of the pension fund assets might decline; or the investment returns might reduce; or the
estimated value of the pension liabilities might increase.
See page 198 for more information on how pension risk is managed.
Assets
The Board of Trustees defines an overall long-term investment strategy for the UKRF, with investments across a broad range of asset classes.
This ensures an appropriate mix of return seeking assets to generate future returns as well as liability matching assets to better match the future
pension obligations. The main market risks within the asset portfolio are against interest rates and equities, as shown by the analysis of scheme
assets within Note 37.
Fair value of UKRF plan assets increased by 4% to £23.7bn (2012: £22.8bn), driven by equities on the back of an equities rally. However, equities
risk within the portfolio was relatively unchanged as its percentage against the rest of the portfolio remained stable.
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