Prudential Regulation Authority Rulebook

1.

For the purposes of Article 278, institutions shall calculate the foreign exchange risk category add-on for a given netting set as follows:

where:

AddOn^FX = the foreign exchange risk category add on;

J = the index that denotes the foreign exchange risk hedging sets established in accordance with point (b) of Article 277a(1) and with Article 277a(2) for the netting set; and

= the foreign exchange risk category add-on for hedging set j calculated in accordance with paragraph 2.

2.

Institutions shall calculate the foreign exchange risk category add-on for hedging set j as follows:

where:

ε_j the hedging set supervisory factor coefficient of hedging set j determined in accordance with Article 280;

SF^FX the supervisory factor for the foreign exchange risk category with a value equal to 4%;

the effective notional amount of hedging set j calculated as follows:

where:

l = the index that denotes the risk position