AIB » Topics » Foreign exchange rate risk - structural

This excerpt taken from the AIB 20-F filed May 30, 2007.

Foreign exchange rate risk - structural

Structural foreign exchange rate risk arises from the Group’s non-trading net asset position in foreign currencies. Structural risk exposure arises almost entirely from the Group’s net investments in its sterling, US dollar and Polish zloty-based subsidiaries. The Group prepares its consolidated financial statements in euro. Accordingly, the consolidated balance sheet is affected by movements in the exchange rates between these currencies and the euro.

Because of the Group’s diversified international operations, the currency profile of its capital may not necessarily match that of its assets and risk weighted assets.

The Group does not maintain material non-trading open currency positions other than the structural risk exposure discussed here.

At December 31, 2006 and 2005, the Group’s structural foreign exchange position against the euro was as follows:

December 31, December 31,
2006 2005
(Euro in millions)

US dollar

1,516 1,627

Sterling

1,257 1,029

Polish zloty

511 392
3,284 3,048

This position indicates that a 10% movement in the value of the euro against these currencies at December 31, 2006 would result in a charge to be taken to reserves of €328 million.

The Group also has a structural exposure to foreign exchange risk arising from the Group’s share of the earnings from its sterling, US dollar and Polish zloty-based subsidiaries. The Group seeks to reduce this exposure through a programme of sales of currency through foreign exchange forwards and options. The Group’s policy limits the extent of forward sales to the extent of the budgeted foreign currency income and does not allow hedging of profits beyond the current year.

At December 31, 2006 and 2005, there were no outstanding contracts to sell future currency profits arising in these subsidiaries. Group ALCO sets the framework and reviews the management of these activities.

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This excerpt taken from the AIB 20-F filed May 25, 2006.

Foreign exchange rate risk - structural

Structural foreign exchange rate risk arises from the Group’s non-trading net asset position in foreign currencies. Structural risk exposure arises almost entirely from the Group’s net investments in its sterling, US dollar and Polish zloty-based subsidiaries. The Group prepares its consolidated financial statements in euro. Accordingly, the consolidated balance sheet is affected by movements in the exchange rates between these currencies and the euro.

Because of the Group’s diversified international operations, the currency profile of its capital may not necessarily match that of its assets and risk weighted assets.

The Group does not maintain material non-trading open currency positions other than the structural risk exposure discussed here.

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At December 31, 2005 and 2004, the Group’s structural foreign exchange position was as follows:

December 31,
2005
December 31,
2004
(Euro in millions)

US dollar

1,627 1,520

Sterling

1,029 1,312

Polish zloty

392 281
3,048 3,113

This position indicates that a 10% movement in the value of the euro against these currencies at December 31, 2005 would result in an amount to be taken to reserves of €305 million.

This excerpt taken from the AIB 20-F filed May 16, 2005.

Foreign exchange rate risk - structural

Structural foreign exchange rate risk arises from the Group’s non-trading net asset position in foreign currencies. Structural risk exposure arises almost entirely from the Group’s net investments in its sterling, US dollar and Polish zloty-based subsidiaries. The Group prepares its consolidated financial statements in euro. Accordingly, the consolidated balance sheet is affected by movements in the exchange rates between these currencies and the euro.

It is normal Group practice to match material individual foreign currency investments in overseas subsidiaries, associated undertakings and branches, with liabilities in the same currency. However, Polish investments are recorded in euro. Because of the Group’s diversified international operations, the currency profile of its capital may not necessarily match that of its assets and risk weighted assets. Under Board-approved policy, a sub-committee of Group ALCO has delegated responsibility for hedging this structural mismatch against adverse exchange rate movements.

The Group does not maintain material non-trading open currency positions other than the structural risk exposure discussed below.

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At December 31, 2004 and 2003, the Group’s structural foreign exchange position was as follows:

December 31,
2004


December 31,
2003


(Euro in millions)

US dollar

1,458 1,499

Sterling

1,309 1,008

Polish zloty

254 129


3,021 2,636


This position indicates that a 10% movement in the value of the euro against these currencies at December 31, 2004 would result in an amount to be taken to reserves of €302 million.

The Group may choose to hedge all or part of its projected future foreign currency earnings, thereby fixing a translation rate for the amount hedged. The purpose of these hedges is to minimize the risk of significant fluctuations in the reported euro values of the Group’s separate US dollar, sterling and Polish zloty earnings. A discussion on the impact of hedging profits is included in “currency factors” on page 23 of this report.