The Bank of Finland's financial asset portfolio consists of gold reserves, foreign currency-denominated and euro-denominated fixed-income investments and holdings in equity and property funds. The financial assets are subject to exchange rate, interest rate, credit and equity risks. Exchange rate risk is the most significant risk related to the Bank of Finland’s financial assets.
Risk management of investment activities by the Bank of Finland has been entrusted jointly to the Administration Department's Risk Control and Financial Accounting unit and the Market Operations Department. The Risk Control and Financial Accounting unit monitors and analyses balance sheet risks and regularly reports to the management on them as well as on investment risks. Risk control of investment activities is also the responsibility of Risk Control and Financial Accounting.
The risk management of investment activities involves the identification, measurement and limitation of risks. The investment of financial assets is based on an investment policy defined by the Board of the Bank of Finland. Risks are measured with commonly used risk assessment methods and are in practice limited by setting detailed limits on investment activities. Risks are also controlled by spreading the trades and investments among several counterparties and issuers with the help of limits, and by spreading the investment across different currencies.
The Bank of Finland’s total risk exposure is assessed using well-established methods. Market and credit risks to the balance sheet are measured by models based on the Value-at-Risk method. The risk assessment is supplemented with scenario analyses and stress tests.
Risk control involves the monitoring and assessment of risks and supervision of compliance with risk limits. Risk reports are produced on a daily basis and possible violations of limits are reported independently of investment activities.