In the work of the Basel Committee there has been a tradition of distinguishing market from credit risk and to treat both categories independently in the calculation of risk capital. In practice positions in a portfolio depend simultaneously on both market and credit risk factors. In this case,...

All else being equal, debt obligations in foreign and local currency carry different default risk. This is commonly recognised in the case of sovereign debt, but less so for non sovereign, i.e., private sector, obligors. To the same obligor, the incremental default risk on a foreign currency...

In this paper we analyze currency risk for an insurance company in the context of capital adequacy. We discuss the difference between translation and structural currency risk and show how a zero-currency-risk benchmark can be chosen in a natural way. We show that by aggregating risk in a...