ECCB 2014-2015 Annual Report and Statement of Accounts

EASTERN CARIBBEAN CENTRAL BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (expressed in Eastern Caribbean dollars) March 31, 2015

3.

Financial risk management …continued

d) Currency risk

The Bank takes on exposure to fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. Management seeks to manage this risk by setting limits on the level of exposure by currency, which are monitored daily. Available-for-sale – foreign investment securities The Bank’s investment guidelines require that all non-US dollar securities be hedged back to the US dollar. As of March 31, 2015, the foreign securities portfolio included Australian securities of $31.6M, Canadian securities of $8.7M and Euro securities of $33.1M. As of March 31, 2014, the foreign securities portfolio included Australian securities of $70.6M. The investment managers have entered into forward contracts to sell the non-USD positions forward on a periodic rolling basis. All gains and losses arising from currency revaluation of these assets and the forward contracts are reported in the consolidated statement of income or loss as they occur. Regional and foreign currencies The Bank facilitates the repatriation of foreign currency notes collected by member banks during their normal course of operations. The notes are purchased from the commercial banks and shipped to Bank of America on a monthly basis. To manage the foreign currency risk of holding these notes, the Bank forward sells these notes on the same day of purchase for value on the date that the counterparty receives them. The Bank’s exposure to foreign exchange risk is limited to the minimum balances held on non-USD demand accounts and investment in non-USD foreign securities. As at March 31, 2015, if exchange rates were to move by 5 per cent, profit for the year would have been $0.1M (2014: $0.2M) lower or higher and the net on-balance sheet financial position would have been $3.7M (2014: $3.4M) lower or higher.

83

ECCB ANNUAL REPORT 2014/2015