Currency risk

The Group does not maintain material non-trading open currency positions other than the structural foreign currency translation exposures arising from its investments in foreign subsidiaries and associated undertakings and their related currency funding. The Group's policy in relation to structural positions is to match fund the structural foreign currency exposure arising from net asset value, including goodwill, in foreign subsidiaries, equity accounted investments and branches, except where doing so would materially increase the sensitivity of either the Group's or the subsidiary's regulatory capital ratios to currency movements. The policy requires structural foreign exchange positions to be reviewed regularly by GALCO. Foreign exchange differences arising on the translation of foreign operations are recognised directly in equity together with the effective portion of foreign exchange differences arising on hedging instruments.

Equity classification of foreign currency denominated preference share issuances requires that these shares be held on the balance sheet at historic cost. Consequently, these share issuances have the effect of increasing the Group's structural foreign currency position.

The table below sets out the Group's structural foreign currency exposures.

2007 Net investments
in foreign
operations
£m		 Net
investment
hedges
£m		 Structural
foreign
currency
exposures
£m
US dollar 14,819 2,844 11,975
Euro 46,629 41,220 5,409
Swiss franc 910 863 47
Chinese RMB 2,600 1,938 662
Brazilian real 3,755 – 3,755
Other non-sterling 2,995 875 2,120
71,708 47,740 23,968
2006
US dollar 15,036 5,278 9,758
Euro 3,059 1,696 1,363
Swiss franc 462 457 5
Chinese RMB 3,013 – 3,013
Other non-sterling 132 107 25
21,702 7,538 14,164

The exposure in Chinese RMB arises from the Group's strategic investment in Bank of China.