Alternative foreign exchange position management for commercial banks: A valuation for Turkish banking system

Moving from fixed exchange rate regime to flexible exchange rate regime together with financial liberalisation brought distincly an increase of foreign currency transactions. Foreign exchange position of banks caused an increase of currency risk exposure and banks became largely exposed to important losses. Thus, especially for traditional deposit banks, currency risk exposure should be managed and hedged. Even if it is not totally possible to eliminate currency risk for banks, it could be managed in a confidence interval. A survey on December 2002-Septembre 2009 balance sheets of Private Capitalised Deposit Banks Grup of Turkish Banking System showed that the Group is time to time exposed to important currency risk because of its large foreign exchange pozisiton.At that point utilisation of financial derrivatives offer a risk aversion against currency risk in foreign exchange position management for banks. Develpping an alternative foreign exchange position management by utilisaiton of financial derrivatives seems doable and necessary to protect The Group against potential losses.Key Words1.Commercial Banks2.Foreign Exchange Position3.Currency Risk4.Derrivatives5.Hedging