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The strategic measures are complemented<br />
by tactical benchmarks,<br />
which are defined at the regular<br />
meetings of the responsible investment<br />
committee for shorter periods<br />
to reflect short-term market developments<br />
and the like. Interest rate<br />
risk is managed on the basis of duration<br />
targets or limits.<br />
Credit Risk<br />
Credit risk is the risk of incurring a<br />
loss due to the failure of a counterparty.<br />
Here, risk management relies<br />
on a credit risk limit system which<br />
documents current credit risk limits<br />
and actual exposure. Credit risk<br />
reports reflecting this information as<br />
well as information derived from<br />
monitoring developments in financial<br />
markets are discussed thoroughly at<br />
regular investment committee meetings<br />
and are reviewed at annual intervals<br />
by the Governing Board.<br />
Liquidity Risk<br />
Liquidity risk is the risk arising from<br />
a counterpartyÕs inability to meet its<br />
financial obligations in time or in full<br />
or the risk that the OeNB may not<br />
dispose of sufficient funds to meet<br />
its obligations. To avoid this risk,<br />
the OeNB selects counterparties with<br />
a high credit standing and strictly<br />
applies the established limits, with<br />
a particular emphasis on security<br />
and liquidity. These principles take<br />
precedence over profitability considerations.<br />
Operational risk<br />
Operational risk is the risk of incurring<br />
losses due to defects, inadequate<br />
procedures or systems, human error<br />
or unforeseen events affecting operations.<br />
The OeNB has set up adequate<br />
risk controls, as laid down in its risk<br />
management handbook ORION —<br />
Handbuch Risiko- und Krisenmanagement<br />
(ORION stands for Operationales<br />
Risikomanagement in der<br />
Oesterreichischen Nationalbank —<br />
operational risk management at the<br />
Oesterreichische Nationalbank). Valuation<br />
takes into account the impact<br />
of various risk scenarios on the<br />
OeNBÕs reputation, costs and any<br />
losses. Risk valuation is an ongoing<br />
process, and reports are submitted<br />
to management every half year.<br />
Financial Statements<br />
<strong>Annual</strong> <strong>Report</strong> <strong>2004</strong> ×<br />
85