Part A3.20Basic method—Foreign Exchange position risk

Part A3.20 Basic method—Foreign Exchange position risk

A3.20.1 Application

(1) Foreign Exchange Derivative positions which are purchased (long) or written (short) Options must be included in the basic method if not calculated under the standard method set out in Part A3.19.

(2) Foreign Exchange Derivative positions which are written Options must be included in the basic method.

A3.20.2 Method

(1) The position risk amount for a purchased Option is the lesser of:

(a) the mark-to-market value of the underlying Foreign Exchange position multiplied by the standard method Position Risk Factor for the underlying position specified in Table A5.1.7 in Annexure 5 to Schedule 1A; and
(b) the mark-to-market value of the Option,
where the market value of the Option should be calculated as the current price of the Option multiplied by the underlying Foreign Exchange position.

(2) The position risk amount for a written Option is the mark-to-market value of the underlying Foreign Exchange position multiplied by the standard method Position Risk Factor for the underlying position specified in Table A5.1.7 in Annexure 5 to Schedule 1A reduced by:

(a) any excess of the exercise value over the current market value of the underlying position in the case of a call Option, but limited to nil if it would otherwise be negative; or
(b) any excess of the current market value of the underlying position over the exercise value in the case of a put Option, but limited to nil if it would otherwise be negative.