Because of the sensitivity of this model, the analysis is supplemented by Value-at-Risk calculations, risk contribution analyses and stress tests. Value-at-Risk is an estimate of potential loss risk and is defined as the largest expected decline in value of an asset, or an asset portfolio, with a specific probability and over a specific period of time. 2  BIS Review 33/2006  As you can see, our largest holding is in euro. This is not surprising, as the relationship between the euro and the krona has remained relatively stable. Historically, the currency risk attributable to our euro holding has thus been less than that attributable to other currencies in the reserve. The dollar, on the other hand, has been one of the highest risk currencies. The fact that we nevertheless have a relatively large dollar exposure is due to its importance as intervention currency. It is reasonable to wonder why we do not choose to convert some of the currency assets into Swedish assets as long as we have a floating exchange rate regime. In this way the currency risk on these assets would disappear completely. In practice, however, this is not so easy as such a conversion would mean that we intervened in the foreign exchange market. In addition, when and if the Government decides that the krona should be part of a fixed exchange rate regime, we would be forced to intervene again to build up the foreign exchange reserve.
Both of these tasks make far-reaching demands on how our assets should be managed. In concrete terms, it means that I and my colleagues on the Executive Board must achieve a balance between the requirements our task place on asset management and the goal of generating earnings. In this balance it is obvious that the possibility to carry out our statutory tasks takes precedence. Earnings are only taken into account if they are attained without jeopardising the Riksbank’s central policy functions. The result of this balance is perhaps most easily described with the aid of the Riksbank’s balance sheet (see Figure 1). The Riksbank’s balance sheet Our financial assets are dominated by foreign government bonds 1 , which can be sold if necessary to intervene in the foreign exchange market. In other words, these assets have a direct link to our task concerning monetary and foreign exchange policy. Historically, the gold holding has been justified for similar reasons. However, nowadays it has become more common to regard gold as a financial asset like any other. This also applies to the Riksbank, whose gold holding partly is adapted according to its contribution to the diversification of the total asset portfolio 2 . This adjustment is made within the framework of an agreement with other central banks 3 . Other important assets are monetary policy repos, which comprise a central part of the steering interest rate system 4 . For earnings reasons, part of the repo transactions has been extended by means of FX swaps 5 .