TNAG-2409-FCO40-3503-Hong-Kong-Port-and-Airport-Development-Strategy-(PADS)-Brit-1992 — Page 283

under a market limit has been left to ad hoc treatment. Views

have tended to fall into two broad camps:

a

Exposure controls are intended to control the

rescheduling risk as this has been the prime cause of claims payments in recent times. This would allow the

short term foreign exchange risk to be excluded as short

term business (ie credit terms up to 365 days) is not

normally rescheduled. Such business has in fact been

excluded from Market Limits which have traditionally been

seen as controls confined to medium and long term business

only.

b

Exposure controls are designed to control and monitor

the foreign exchange risk. This is often referred to

simply as the transfer risk. This approach captures all

payments involving transfer across the exchanges from the

buyer to the exporter's country

including "cash"

payments.

5

Neither of these approaches provides a completely

satisfactory solution as they do not adequately address various

difficulties, including the single largest problem area of risk

monitoring the treatment of Long Delivery Cash Contracts and

Short Term business where credit terms are less than 365 days.

These categories would be excluded under a. above but included

under b.

PMS

6

We need to turn to PMS for a more logical and convincing

framework for deciding "what to count". Under PMS the role of

market controls is much clearer: they are designed to contain

exposure levels relative to risk in order to reinforce the

chances of break-even on the political risk portfolio. The

Control Review

for individual markets

Stock

Points (SCRPS)