FX Risk

The main unit of account is USD. This means that each position that comprises your NAV (cash + present value of assets and liabilities) is valued in USD.

Based on the eligible collateral in your Trading Account, you are subject to foreign exchange (denoted as, "FX") risk (e.g. you holding a borrowing ETH position, priced as ETH/USD, where the price of ETH goes up, the present value of your liability in USD terms goes up, assuming no change in ETH interest rate). For example, if you are in a:

• Lending position, you would be long the FX risk, i.e. long the token/USD pair

• Borrowing position, you would be short the FX risk, i.e. short the token/USD pair

A simple example on why a borrowing position is short the FX risk is where you have stablecoin(s) (e.g. USDC) in your Trading Account and created a ETH borrowing position (e.g. 10 ETH).

• As the price of ETH/USD goes up (e.g. from 1,800 to 2,000), the amount of ETH you owe would increase in USD terms, or put another way - the amount of ETH your USDC could purchase, under a liquidation scenario, decreases as the price of ETH/USD increases

• Separately, since USDC is a stablecoin, its price relative to USD (USDC/USD) may fluctuate greater or less than 1. In the event of a depeg (where the USDC/USD price deviates materially away from 1), you would be subject to an additional FX risk, since, in the case of a depeg downwards, the USD value decreases as the price of USDC drops below 1

• Put together, if the price of ETH goes up and the price of USDC goes down, in USD terms, you would be negatively affected by FX risk in both ways

• Note: under the Portfolio Margin approach, Infinity's risk framework would take into account all of the tokens comprising your NAV

Mechanically, let’s take the example of holding a fixed rate lending position in ETH.

• PV(USD) denotes the present value of your ETH fixed rate lending position, in USD terms

• PV(ETH) denotes the present value of your ETH fixed rate lending position, in ETH terms

$$PV_{USD}=\sum_{i} B_{USD}(0,i)\times CF_{USD,i}\\=\sum_{i} \frac{1}{{(1+r_{USD}(0,i))^i}}\times CF_{ETH,i}\times FX(0)\times \frac{(1+r_{USD}(0,i))^i}{{(1+r_{ETH}(0,i))^i}}\\=\sum_{i} \frac{1}{{(1+r_{ETH}(0,i))^i}}\times CF_{ETH,i} \times FX(0)=PV_{ETH} \times FX(0)$$

In the formula above, PV(USD) is a function of spot FX (ETH/USD) and PV(ETH), the latter shown as r(ETH). Note: r(USD) does not intervene here and therefore, there is no sensitivity to the interest rate differential between USD and ETH, or put another way - no sensitivity to FX forwards

=> All FX exposure are treated as spot FX exposure. There is no exposure to FX forwards.

Under My Risk Positions, in the Risk Overview page, a breakdown of the present value of your net positions are shown, either in local currency (e.g. ETH = ETH, or ETH in USD terms), grouped by contract or period (e.g. month, quarter, semi-annual, annual). For example, the below graph would be "PV By Monthly".

• To calculate your net position delta in USD, you would divide the figures by 100. In the 1M bucket, if the ETH/USD price goes up +1 bps, your PV would decrease by $(28), while your in aggregate you are up $4,257.

Monthly	WBTC	ETH	USDT	USDC	DAI
1M	0	(2,831)	0	5,000	4,563
2M	1	1	0	500,000	50
3M	(0)	0	10	8,418	5,000
4M	896	5,000	0	0	50
5M	50	1	500	5,000	5,000
6M	0	500	500,000	5	(0)
7M	0	0	1	0	5,000
8M	5	50	1	(58,131)	1
9M	0	1	5,000	50	0
10M	1	(77,538)	(1,182)	5	5
11M	5,000	500	0	50	1
12M	500	500,000	0	50	500,000
Sum	6,452	425,682	504,329	460,447	519,669