Management of Banks Assets-Liabilities:

Authorised dealers may use the following instruments to hedge their assets-liability portfolio after an appropriate policy in this regard is approved by their Top Management-

1. Interest rate swaps;

2. Currency swaps; and

3. Forward rate agreements.

The use of these instruments is subject to the following conditions:

a) The value and maturity of the hedge do not exceed that of the underlying.

b) No stand alone transactions are initiated. If a hedge becomes naked in part or full owing to shrinking of the portfolio, it may be allowed to continue till maturity and marked to market at regular intervals.

c) The net cash flows arising out of these transactions are booked as income and expenditure. This will form part of the exchange position.