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Exchange Rates

Volume 491: debated on Wednesday 22 April 2009

To ask the Secretary of State for Foreign and Commonwealth Affairs how foreign exchange risk on his Department's foreign currency liabilities is managed; and if he will make a statement. (268081)

Two mechanisms are used to manage our foreign exchange risk:

The Overseas Pricing Mechanism (OPM) to support exchange rate pressures. Although HM Treasury withdrew support for the OPM we continue to operate the OPM internally to maintain the purchasing power of our overseas posts' local budgets.

For our significant exposure in US dollars and euros, and to a lesser extent Japanese yen, a forward purchase strategy contracted through the Bank of England. To date we have secured several contracts with the Bank of England. These provide the maximum cover allowed for our forecast US dollar and euro net exposure up to February 2010, and partial cover over the intervening months to January 2011.