Currency risk is the risk of loss due to adverse changes in the financial institution in exchange rates. The concept of "currency risk" due to the fact that usually the assessment of the outcome of the financial institution is held in the same currency, called the "base." The structure of the investment portfolio may consist of various financial instruments in different countries. In this case, the institutional investor is subject not only to the price risk of the selected instrument (eg shares), but the exchange rate risk of the base currency of the country to the currency of denomination of the investment tool.

Current currency risk is the risk that currency with floating rates. Changes in exchange rates is due to a number of macroeconomic processes (investment flows, economic situation, financial policies of countries). Effective solution of currency risk management is the application of the company "Franklin & Grant" Technology Value at Risk (VaR). VaR describes the maximum amount of losses, the excess of which will occur with a probability of less than specified. Currency risk assessment system based on the technology of VaR is generally accepted.

Currency risk assessment through "Franklin & Grant."

 As the most effective way to calculate the quantitative value of reservation amounts required to manage the currency risk of the investment portfolio?

 Assume that the investment portfolio consists of U.S. dollars, euro and Japanese yen as a percentage ratio of 60, 25 and 15%. The base currency for the calculation of the investment result is the Russian ruble. The portfolio value is equivalent to 100 million rubles. Historical period: from 28.12.2001 to 29.05.2002.

 Necessary to quantify the currency risk of the portfolio over 10 days (ie, loss of the use of such structures in the currency during the period), 95%.

What is the advantage of technology, "Franklin & Grant" in comparison with other methods?

Method of calculating VaR is important both for a correct evaluation of the potential risks arising from the conversion of one currency to another, and for the calculation of the optimal capital reserves in case of strong price movements. It is in these components - the exact risk of changes in exchange rates and the minimum amount of reserve capital technology risk assessment of "Franklin & Grant" is unparalleled.

Use of the unique technology of "Franklin & Grant" in the field of financial engineering will help to implement effective management of foreign exchange risk management risk management department heads of various financial institutions.