Internal Control Questionnaires and Verification Procedures

Foreign Exchange Risk

1. Have the board and management established foreign exchange risk policies and procedures for derivatives that:

   1. Discuss the objectives of the program to manage the level of capital exposed to foreign currency revaluations? Are these objectives clearly articulated, measurable, and reasonable?

   2. Discuss issues regarding activities in countries possessing illiquid or nondeliverable currencies?

   3. Define exposure limits within which the bank seeks to operate?

   4. Discusses both branches and affiliates?

   5. Clearly identify the persons responsible for managing the level of capital exposed to foreign currency revaluations, and require that they be independent of other trading areas?

   6. Define whether exposure will be managed on a centralized or decentralized basis?

   7. Define requirements for limit exceptions and approvals?

   8. List appropriate products to be used to hedge exposure, and identify individuals responsible for monitoring hedge performance?

   9. Provide prudent safeguards against adverse currency fluctuations?

   10. Require annual approval by the board or appropriate committee?

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