RBS 2004 Annual Report Download - page 113

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section
01
111
Annual Report and Accounts 2004
Operating and financial review
Operating and
financial review
lCurrency risk
The Group does not maintain material non-trading open
currency positions other than the structural foreign currency
translation exposures arising from its investments in overseas
subsidiaries and associated undertakings and their related
currency funding. The Group’s policy in relation to structural
positions is to match fund the structural foreign currency
exposure arising from net asset value, including goodwill, in
overseas subsidiaries, equity accounted investments and
branches, except where doing so would materially increase the
sensitivity of either the Group’s or the subsidiary’s regulatory
capital ratios to currency movements. The policy requires
structural foreign exchange positions to be reviewed regularly
by GALCO. Gains or losses on foreign currency investments
net of any gains or losses on related foreign currency funding
or hedges are recognised in the statement of total recognised
gains and losses.
The tables below set out the Group’s structural foreign currency exposures.
Foreign
currency Structural
Net investments borrowings foreign
in overseas hedging net currency
operations investments exposures
2004 £m £m £m
US dollar 12,367 6,580 5,787
Euro 2,086 1,349 737
Swiss franc 398 392 6
Other non-sterling 116 112 4
14,967 8,433 6,534
2003
US dollar 5,329 5,198 131
Euro 1,422 826 596
Swiss franc 357 357 —
Other non-sterling 118 114 4
7,226 6,495 731
The US dollar open structural foreign currency exposure reflects the action taken to mitigate the effect of the acquisition of Charter
One on the Group’s capital ratios. The structural foreign currency exposure in euros is principally due to Ulster Bank running an
open structural foreign exchange position to minimise the sensitivity of its capital ratios to possible movements in the Euro exchange
rate against Sterling.
lEquity risk
Non-trading equity risk arises principally from the Group’s
strategic investments, its venture capital activities and its general
insurance business.
VaR is not an appropriate risk measure for the Group’s venture
capital investments, which comprise a mix of quoted and
unquoted investments, or its portfolio of strategic investments.
At 31 December 2004, equity shares held as investment
securities had a book value of £2,440 million (2003 – £1,821
million) and a valuation of £2,882 million (2003 – £2,238 million).