Foreign Exchange Exposure and Risk Management

Introduction and Context

International trade creates value through access to foreign markets, suppliers, finance and production resources. It also creates exposure to movements in exchange rates. A firm may agree today to receive euros in 90 days, own a foreign subsidiary whose accounts are reported in another currency, or face changing competitive conditions because its rivals’ currencies have appreciated or depreciated. These are different forms of foreign exchange exposure and require different management responses.

Foreign exchange risk is the possibility that an adverse exchange-rate movement will reduce cash flow, profit, asset value, competitiveness or financial covenant capacity. Exposure is the underlying sensitivity; risk is the possibility and consequence of an unfavourable outcome. Effective management therefore begins with measurement and classification, not with automatically purchasing a derivative.

For an exporting or importing enterprise, currency risk management should support commercial objectives while controlling liquidity, counterparty, accounting and operational risks. The central managerial questions are:

• What foreign-currency cash flows or values are exposed?
• When and with what degree of certainty will they occur?
• How much loss is acceptable?
• Which natural, operational or financial hedge is proportionate?
• How will hedge performance, compliance and residual risk be monitored?

Learning Objectives

After studying this chapter, the learner should be able to:

1. Distinguish transaction, translation and economic exposure.
2. Measure exchange-rate sensitivity and currency-at-risk.
3. Explain the operation, benefits and limitations of natural, operational and financial hedges.
4. Select hedging instruments for common trade-finance situations.
5. Design a foreign exchange risk policy with limits, authorities and controls.
6. Evaluate hedge effectiveness, accounting implications and ethical governance issues.

1. The Exchange-Rate Measurement Framework

An exchange rate is a price: it expresses the value of one currency in terms of another. Quotation conventions must be stated clearly. In this chapter, S denotes the domestic-currency price of one unit of foreign currency. Thus, an increase in S means that the foreign currency has appreciated against the domestic currency, or that the domestic currency has depreciated.

If a firm will receive F units of foreign currency, the domestic-currency value is:

where V is domestic-currency value, F is the foreign-currency amount, and S is domestic currency per unit of foreign currency. The formula assumes the amount is fixed and ignores transaction costs, taxes and timing effects.

If the foreign-currency amount is payable rather than receivable, the same valuation applies, but an increase in S creates a loss for the payer. Consequently, exposure has both an amount and a direction.

For a small exchange-rate change, the change in value is approximately:

The approximation is exact when the foreign amount is fixed and only the spot rate changes linearly. For a receivable, a positive ∆S is favourable; for a payable, it is unfavourable. If the foreign amount itself changes, the more complete change is:

The final term is a cross-effect and is often small for short-period sensitivity analysis, but it should not be ignored in large or highly variable exposures.

Currency exposure report

A useful exposure report records, by currency and time bucket:

Netting same-currency inflows and outflows can reduce the amount requiring external hedging. However, netting is appropriate only when timing, legal entity, convertibility and liquidity conditions are sufficiently reliable.

2. Three Principal Forms of Exposure

2.1 Transaction exposure

Transaction exposure arises from contracted or highly identifiable foreign-currency cash flows whose domestic value can change before settlement. Common examples include:

• an export invoice denominated in US dollars;
• an import payable in euros;
• foreign-currency interest or principal payments;
• a confirmed purchase or sales order;
• a foreign-currency dividend or royalty receivable.

Transaction exposure is usually short- or medium-term and is comparatively measurable. It affects cash flows and, under applicable accounting rules, may affect reported profit through exchange gains or losses.

Illustrative calculation. An exporter will receive USD 100,000 in 60 days. The current rate is ₹83.00 per USD and the rate at settlement becomes ₹81.50. The rupee receipts are:

At current rate: 100,000 × 83.00 = ₹8,300,000.

At settlement rate: 100,000 × 81.50 = ₹8,150,000.

The exporter receives ₹150,000 less than the value measured at the current rate. This is an adverse transaction-exposure effect. A US-dollar payable would experience the opposite economic effect: the lower dollar rate would reduce its rupee cost.

2.2 Translation exposure

Translation exposure, also called accounting exposure, arises when the financial statements of a foreign operation are translated into the reporting currency. It affects reported assets, liabilities, income and equity even when no immediate cash flow occurs.

For example, an Indian parent may consolidate a subsidiary whose functional currency is the euro. If the subsidiary’s net assets are €5 million, a change of ₹90 to ₹88 per euro changes the translated net assets by:

€5,000,000 × (₹88 − ₹90) = −₹10,000,000.

The accounting treatment of this difference depends on the applicable reporting framework and the nature of the item. Translation differences may be recognised in other comprehensive income or an equivalent reserve rather than current profit, but the precise treatment must be determined under the relevant accounting standards.

Translation exposure matters because it can affect reported leverage, net worth, earnings indicators and stakeholder perceptions. It does not necessarily represent an immediate cash loss. Hedging it may nevertheless be justified where reported volatility affects covenants, market communication or strategic decisions.

2.3 Economic exposure

Economic exposure is the long-term effect of exchange-rate movements on the present value of future operating cash flows and competitive position. It is broader than contractual exposure. It can affect:

• export demand and selling prices;
• import costs and gross margins;
• competitor pricing;
• sourcing decisions;
• production location;
• investment and market-entry choices.

Suppose a domestic manufacturer competes with a Japanese producer. If the yen depreciates substantially, the Japanese competitor may lower its domestic-currency price or retain a larger margin. The domestic firm may lose sales even though it has no Japanese-currency invoice. This is economic exposure.

Economic exposure is difficult to measure because it depends on uncertain quantities, prices, elasticities, competitor responses and strategic decisions. It is managed mainly through operating measures, such as flexible sourcing, geographic diversification, local production, currency matching of costs and revenues, and adaptable pricing.

Comparison of exposure types

3. Measuring Sensitivity and Currency-at-Risk

3.1 Sensitivity analysis

Sensitivity analysis asks how value changes if the exchange rate moves by a specified amount. For a fixed foreign-currency receivable or payable, the first-order sensitivity is the foreign amount itself:

The unit is domestic currency per one-unit change in the exchange rate, when F is measured in foreign-currency units. If a firm has a net USD receivable of USD 2 million, a ₹1 per USD adverse movement changes domestic-currency value by approximately ₹2 million.

A scenario table is often more useful to managers than a single sensitivity number. Assume a USD 2 million receivable and a current rate of ₹83 per USD:

This analysis assumes a fixed receivable and no hedge. It does not assign probabilities to scenarios.

3.2 Net exposure and hedge ratio

For a currency and maturity bucket, net exposure can be represented as:

where R is foreign-currency receivables and inflows, P is foreign-currency payables and outflows, and N is the net foreign-currency position. A positive N is a net receivable; a negative value is a net payable.

If H is the amount hedged, the hedge ratio is:

where 0 ≤ h ≤ 1 for a partial or full hedge. A ratio above 1 indicates over-hedging unless it is deliberately used for a separately documented exposure. Hedge ratios should be based on exposure certainty, not merely on management preference.

3.3 Currency-at-Risk

Currency-at-Risk (CaR) estimates a potential adverse loss over a specified horizon and confidence level. A simple parametric model assumes that the percentage change in the exchange rate is approximately normally distributed. If the domestic value of a net position is V, the estimated standard deviation of the exchange-rate return is σ, and the confidence-level normal quantile is zα, then:

For a one-tailed 95% confidence level, zα ≈ 1.645; for 99%, zα ≈ 2.326. The estimate assumes a linear position, stable volatility, normally distributed returns and a clearly defined horizon. These assumptions may fail during crises, when exchange-rate distributions can have fat tails and changing volatility.

Worked example. A company has a net foreign-currency receivable worth ₹83 million. The estimated one-month exchange-rate volatility is 2.0%. At 95% confidence:

CaR = ₹83,000,000 × 1.645 × 0.02.

First, 0.02 × 1.645 = 0.0329. Therefore:

CaR = ₹83,000,000 × 0.0329 = ₹2,732,700.

The one-month 95% CaR is approximately ₹2.73 million. This means that, under the model, the potential adverse loss is estimated not to exceed ₹2.73 million on 95% of comparable one-month periods. It does not mean that the maximum possible loss is ₹2.73 million, nor that a loss of this size will occur once every twenty periods.

For a portfolio of currencies, a covariance-based model may be used:

Here w is the vector of position weights or sensitivities, Σ is the covariance matrix of currency returns, and σp is portfolio volatility. Diversification can reduce risk when currency movements are imperfectly correlated, but correlations may rise sharply during market stress.

Historical simulation and Monte Carlo simulation can address non-normal distributions more flexibly. They still depend on data quality, model design and assumptions. CaR should therefore be supplemented by stress tests, such as a 5%, 10% or crisis-period currency movement.

4. Hedging Approaches

4.1 Natural hedges

A natural hedge reduces exposure through matching foreign-currency inflows and outflows without entering a derivative. Examples include:

• paying foreign suppliers using export receipts;
• borrowing in the currency of the asset or revenue stream;
• invoicing customers in the same currency as major costs;
• matching the maturity of receivables and payables;
• holding foreign-currency cash balances for predictable payments.

Natural hedges often have lower transaction cost and less documentation than derivatives. However, they may introduce liquidity, refinancing, credit and concentration risks. A foreign-currency loan is not automatically a hedge if revenues are uncertain or if the loan maturity does not match the operating exposure.

4.2 Operational hedges

Operational hedging changes the business configuration to reduce sensitivity. Methods include:

• diversifying production across currency regions;
• sourcing inputs from several countries;
• using local suppliers when sales are local-currency denominated;
• establishing flexible transfer-pricing and sourcing arrangements within legal limits;
• adjusting product prices or contract currency clauses;
• shifting production volumes between plants;
• using currency-adjustment clauses in long-term contracts.

Operational hedges are particularly important for economic exposure. They may provide durable protection but often require capital investment, regulatory review and organisational flexibility. A plant relocation undertaken solely for currency reasons may be uneconomic after considering labour, logistics, tax, quality and political risks.

4.3 Financial hedges

Financial instruments transfer or reshape exchange-rate risk. Their selection should reflect exposure certainty, timing, direction, liquidity and the firm’s risk appetite.

#### Forward contracts

A forward contract fixes an exchange rate for a specified future purchase or sale of currency. An exporter receiving USD may sell USD forward; an importer needing USD may buy USD forward. Forwards provide certainty but eliminate favourable participation and create counterparty and settlement obligations.

#### Futures

Currency futures are standardised, exchange-traded contracts. They offer transparency, clearing and reduced bilateral counterparty risk, but standard maturities and contract sizes can create basis risk. Daily margining creates cash-flow requirements.

#### Options

A currency option gives the buyer the right, but not the obligation, to buy or sell currency at a specified strike rate. The buyer pays a premium. A put option on a foreign-currency receivable can establish a minimum domestic value while retaining favourable upside. An importer may buy a call option to cap the domestic cost of foreign currency.

Options are flexible but premiums can be significant. Zero-cost structures, such as collars, combine bought and sold options and therefore impose a range of outcomes rather than providing unlimited protection. The risks and obligations of the sold option must be understood.

#### Currency swaps

A currency swap exchanges principal and, usually, interest payments in different currencies. It is commonly used for longer-term funding or asset-liability management. Swaps involve valuation, collateral, credit and documentation risks and are generally more suitable for experienced treasury operations.

#### Money-market hedge

A money-market hedge uses borrowing and lending to lock an effective domestic-currency value. For a foreign-currency receivable, the firm can borrow the present value of the receivable in the foreign currency, convert the proceeds immediately, and repay the foreign loan using the future receipt. The method can be compared with a forward rate after considering interest rates, credit limits, taxes and transaction costs.

Choosing among instruments

5. Hedge Policy, Limits and Controls

A hedge programme should be governed by a written policy approved by the board or an authorised risk committee. The policy is not merely a list of permitted instruments; it defines purpose, authority, measurement and accountability.

Core elements of a policy

1. Objective: protect cash flows, margins, solvency or accounting metrics; speculative profit should not be the default objective.
2. Scope: currencies, entities, exposures, time horizons and instruments covered.
3. Exposure definitions: contracted, highly probable forecast, contingent and strategic exposures.
4. Hedge ratios: minimum and maximum percentages by exposure type and maturity.
5. Instrument permissions: approved forwards, options, futures, swaps and counterparties.
6. Limits: notional, tenor, counterparty credit, market loss, liquidity and concentration limits.
7. Authority matrix: dealing, confirmation, settlement, accounting and escalation responsibilities.
8. Documentation: trade confirmations, exposure evidence, valuation records and hedge designation.
9. Reporting: frequency, recipients, key metrics and breach procedures.
10. Review: periodic back-testing, stress testing and policy revision.

Governance and internal control

Front-office personnel should not independently confirm, value and settle their own trades. A sound segregation-of-duties structure includes:

• treasury or dealing staff who execute approved transactions;
• independent middle-office staff who measure exposures and compliance;
• back-office staff who confirm, settle and reconcile;
• finance staff who assess accounting and reporting treatment;
• internal audit or risk assurance staff who test controls.

Important controls include independent rate verification, confirmation matching, counterparty limit monitoring, collateral monitoring, exception escalation, access controls and complete audit trails. The treasury system should distinguish a genuine hedge from a speculative position and should prevent unauthorised trade types.

Hedge effectiveness and accounting

Economic effectiveness asks whether the hedge reduces the targeted exposure. Accounting hedge treatment is a separate question governed by the applicable financial reporting framework. Designation, documentation, eligible hedging relationships, effectiveness assessment and treatment of ineffectiveness must be addressed at inception and throughout the hedge.

A hedge can be economically sensible but fail accounting requirements. Conversely, favourable accounting presentation does not prove that the underlying risk has been reduced. Managers must therefore report both economic outcomes and accounting outcomes.

6. Integrated Illustrative Case

Background

Illustrative case: Meridian Components Ltd., an Indian manufacturer, exports electronic assemblies to the United States and imports specialised control units from Germany. In the next three months it expects a USD 1.5 million receipt and a EUR 600,000 payment. The USD sale is contracted; the EUR purchase is firm but payable in two instalments. Meridian also expects additional, uncertain USD sales during the following six months.

Problem

The company has a USD receivable and a EUR payable. It is therefore exposed to a fall in the dollar and a rise in the euro. Management wants to protect the minimum operating margin but retain some benefit if exchange rates move favourably. It also lacks a formal policy and has previously allowed sales staff to promise fixed prices without treasury consultation.

Analysis

The contracted USD exposure is suitable for a high hedge ratio because its amount and timing are known. The EUR payable is also sufficiently certain for hedging, although the instalment dates should be matched separately. The uncertain future USD sales should not be hedged as if they were guaranteed; doing so could create over-hedging and a speculative position.

Assume the current spot rate is ₹83/USD. A ₹2 adverse movement would reduce the rupee value of the USD 1.5 million receivable by:

USD 1,500,000 × ₹2 = ₹3,000,000.

For the euro payable, a ₹3 increase per euro would increase the rupee cost by:

EUR 600,000 × ₹3 = ₹1,800,000.

The combined gross adverse sensitivity is ₹4.8 million, although the two currency movements need not occur together.

Approach and solution

Meridian adopts the following programme:

• sell forward 80% of the contracted USD receipt, leaving 20% open for potential upside;
• buy EUR forward for 70% of the first instalment and use a euro call option for the remaining 30%;
• prohibit hedging of forecast USD sales until they reach an approved probability threshold;
• introduce monthly exposure forecasts by currency and maturity;
• require treasury approval before sales contracts specify a foreign currency;
• establish counterparty, tenor and aggregate notional limits;
• conduct a monthly stress test using 5% adverse movements and a quarterly review of hedge effectiveness.

The option on part of the euro payable costs a premium but preserves protection against a rise while permitting benefit if the euro falls. The forward portion provides certainty at lower upfront cost.

Outcome

Meridian reduces the risk of a severe margin decline without fixing every currency outcome. Its policy also reduces behavioural and governance risk by linking commercial contracting to treasury review. The company must still monitor forecast accuracy, option premium expense, forward valuation, counterparty exposure and accounting designation.

Learning points

1. Direction matters: a currency can be favourable for one exposure and adverse for another.
2. Certain exposures generally justify more complete hedging than uncertain forecasts.
3. A mixed hedge can balance certainty, flexibility and cost.
4. Risk measurement must include net positions and maturity dates.
5. Policy and controls are as important as instrument selection.

7. Challenges, Limitations and Contemporary Developments

No hedge eliminates all risk. Basis risk occurs when the hedge instrument does not move exactly with the exposure. Timing risk arises when the cash flow date changes. Credit risk arises if a counterparty cannot perform. Liquidity risk arises through margin calls, collateral or premium payments. Model risk arises when volatility, correlations or exposure forecasts are unreliable.

Forecast exposures are especially problematic. If expected sales fail to materialise, a derivative may become an uncovered position. Layered hedging—hedging a portion of expected exposure at successive dates—can reduce timing and forecast risk, but it requires disciplined monitoring.

Technology enables automated exposure aggregation, real-time market valuation, scenario analysis and limit alerts. Artificial intelligence can assist with invoice classification, cash-flow forecasting and anomaly detection. It should not replace human oversight: opaque models may reproduce poor data, overlook contractual context or generate false confidence during unprecedented events. Model validation, access governance, explainability and human approval remain essential.

Contemporary treasury practice increasingly integrates foreign exchange with working capital, supply-chain finance, sanctions screening, environmental and social risk, and cyber resilience. Firms also face regulatory requirements concerning derivatives reporting, clearing, margin, conduct and financial disclosure, which vary by jurisdiction. Compliance must be confirmed with current local law and professional advice.

Ethically, treasury personnel must avoid disguising speculation as hedging, selecting instruments for personal incentives, manipulating exposure forecasts or concealing losses. Transparent reporting should distinguish realised results, mark-to-market movements, hedge costs and the economic objective of each transaction.

Best-Practice Checklist

Before implementing a hedge, management should ask:

• Is the exposure clearly identified and measured?
• Is its direction, currency and settlement date known?
• Has natural netting been considered first?
• Is the hedge proportionate to exposure certainty?
• Are instrument risks, costs and accounting consequences understood?
• Is the counterparty approved and within limit?
• Are valuation, confirmation and settlement independently controlled?
• Will stress testing reveal unacceptable residual loss?
• Is the hedge documented and reviewable?
• Does the decision support, rather than replace, sound commercial strategy?

Chapter Summary

Foreign exchange exposure is the sensitivity of a firm’s value, cash flow or reported accounts to exchange-rate movements. Transaction exposure concerns identifiable foreign-currency cash flows; translation exposure concerns the conversion of foreign financial statements; and economic exposure concerns the long-term effect on operating cash flows and competitiveness.

Exposure measurement begins with currency, direction, amount, timing and certainty. Net exposure is obtained by offsetting same-currency inflows and outflows. Sensitivity analysis shows the value impact of specified rate movements, while Currency-at-Risk estimates a potential adverse loss under stated statistical assumptions. Because models can fail during stressed markets, CaR should be combined with scenario and stress analysis.

Natural and operational hedges reduce exposure through business structure and currency matching. Forwards, futures, options, swaps and money-market hedges provide financial alternatives, each with distinct trade-offs involving certainty, flexibility, cost, liquidity, basis and counterparty risk. The appropriate hedge depends on the exposure’s certainty and purpose.

A professional programme requires a written policy, approved instruments, hedge ratios, limits, segregation of duties, independent valuation, documentation, reporting and escalation. Economic hedge effectiveness and accounting treatment must be evaluated separately. Good governance prevents speculative activity from being presented as risk management and ensures that technology supports, rather than replaces, informed human judgement.

Key Terms

Basis risk: Risk that a hedge instrument and the underlying exposure do not change in exactly the same way.

Currency-at-Risk (CaR): Estimated potential adverse currency loss over a stated horizon and confidence level.

Economic exposure: Long-term effect of exchange rates on operating cash flows and competitive value.

Exchange rate: Price of one currency expressed in another currency.

Financial hedge: A financial contract used to reduce or reshape currency risk.

Forward contract: Agreement to exchange currencies at a specified future date and rate.

Futures contract: Standardised, exchange-traded currency contract.

Hedge ratio: Hedged amount divided by the absolute net exposure.

Natural hedge: Risk reduction achieved by matching foreign-currency inflows and outflows.

Net exposure: Foreign-currency inflows less foreign-currency outflows for a specified currency and period.

Operational hedge: Reduction of exposure through sourcing, production, pricing or geographic decisions.

Option: Contract giving the buyer a right, but not an obligation, to buy or sell currency at a specified rate.

Over-hedging: Hedging an amount greater than the underlying exposure.

Sensitivity analysis: Assessment of value changes resulting from specified changes in an exchange rate.

Spot rate: Exchange rate for near-immediate currency delivery.

Stress testing: Analysis of outcomes under severe but plausible assumptions.

Transaction exposure: Risk to the domestic value of contracted foreign-currency cash flows.

Translation exposure: Accounting exposure arising when foreign operations are translated into the reporting currency.

Volatility: Statistical measure of variability in exchange-rate returns.

Currency swap: Agreement to exchange currency principals and usually interest payments over time.

Review Questions

Short Answer Questions

1. What is the difference between foreign exchange exposure and foreign exchange risk?
2. Why does a foreign-currency receivable benefit from an increase in the domestic-currency price of that currency?
3. Define transaction exposure and give two examples.
4. What is the purpose of a hedge ratio?
5. State two limitations of a parametric Currency-at-Risk estimate.

Long Answer Questions

1. Compare transaction, translation and economic exposure with respect to timing, certainty, financial effect and suitable management responses.
2. Explain how a firm can use natural and operational hedges to manage economic exposure.
3. Discuss the advantages and limitations of forwards, futures, options and currency swaps.
4. Design the principal components of a foreign exchange risk management policy for an international trading company.
5. Explain why economic hedge effectiveness and hedge accounting treatment should be evaluated separately.

Analytical / Application Questions

1. An exporter has a USD 2 million receivable. The exchange rate changes from ₹82 to ₹79 per USD. Calculate the approximate domestic-currency effect and explain whether it is favourable or adverse.
2. A firm has a net foreign-currency position worth ₹120 million, monthly volatility of 1.8%, and uses a 95% normal quantile of 1.645. Calculate its one-month parametric CaR and state two assumptions behind the estimate.
3. A company expects uncertain foreign-currency sales but has firm import payables in the same currency. Recommend a hedge structure and explain how forecast uncertainty, natural netting and over-hedging should influence the decision.

Multiple Choice Questions with Answers

Question 1

Which exposure arises from a contracted foreign-currency receivable whose domestic value changes before settlement?

A. Transaction exposure

B. Translation exposure

C. Economic exposure

D. Political exposure

Correct Answer: A. Transaction exposure

Question 2

A firm has a USD 1,000,000 receivable and the exchange rate rises by ₹2 per USD. Ignoring costs, what is the approximate domestic-currency effect?

A. A loss of ₹2,000,000

B. A gain of ₹2,000,000

C. A gain of ₹500,000

D. No effect

Correct Answer: B. A gain of ₹2,000,000

Question 3

Which measure primarily concerns the conversion of a foreign subsidiary’s financial statements into the parent’s reporting currency?

A. Transaction exposure

B. Translation exposure

C. Settlement risk

D. Operating leverage

Correct Answer: B. Translation exposure

Question 4

A company has foreign-currency inflows of 9 million and outflows of 6 million. What is its net foreign-currency position?

A. A net payable of 15 million

B. A net payable of 3 million

C. A net receivable of 3 million

D. A net receivable of 15 million

Correct Answer: C. A net receivable of 3 million

Question 5

Which instrument gives the buyer a right, but not an obligation, to exchange currency at a specified rate?

A. Forward contract

B. Currency option

C. Currency futures contract

D. Spot transaction

Correct Answer: B. Currency option

Question 6

A company has a net exposure of ₹50 million and hedges ₹35 million. What is its hedge ratio?

A. 35%

B. 50%

C. 70%

D. 85%

Correct Answer: C. 70%

Question 7

Using CaR = V × zα × σ, what is CaR when V = ₹100,000,000, zα = 1.645 and σ = 0.02?

A. ₹329,000

B. ₹2,000,000

C. ₹3,290,000

D. ₹16,450,000

Correct Answer: C. ₹3,290,000

Question 8

Which is the clearest example of a natural hedge?

A. Buying an option solely to profit from volatility

B. Matching dollar export receipts with dollar supplier payments

C. Entering a futures contract unrelated to an exposure

D. Borrowing in a currency with no expected cash flow

Correct Answer: B. Matching dollar export receipts with dollar supplier payments

Question 9

What is a principal limitation of a forward contract for a certain foreign-currency receipt?

A. It normally provides no exchange-rate certainty

B. It prevents the firm from benefiting from favourable rate movements

C. It cannot specify a future settlement date

D. It is always exchange-traded and standardised

Correct Answer: B. It prevents the firm from benefiting from favourable rate movements

Question 10

Which control best supports segregation of duties in a treasury function?

A. Allowing one dealer to execute, confirm and settle all trades

B. Prohibiting independent valuation of derivatives

C. Separating dealing, confirmation and settlement responsibilities

D. Removing counterparty limits for approved banks

Correct Answer: C. Separating dealing, confirmation and settlement responsibilities