ratios therefore set minimum levels. A banks risk-adjusted exposure is the cash risk-adjusted exposure together with the total risk- adjusted off-balance sheet exposure. For cash products on the banking book, the capital charge calculations (risk-adjusted exposure) is given by:   principal value ´ risk weighting ´ capital charge [8%]   calculated for each instrument. The sum of the exposures is taken. Firms may use netting or portfolio modelling to reduce the total principal value. The capital requirements for off-balance sheet instruments are lower because for these instruments the principal is rarely at risk. Interest-rate derivatives such as forward rate agreements (FRAs) of less than one     years maturity have no capital requirement at all, while a long-term cur- rency swap requires capital of between 0.08% and 0.2% of the nominal principal.4 The BIS makes a distinction between banking book transactions as carried out by retail and commercial banks (primarily deposits and lend- ing) and trading book transactions as carried out by investment banks and securities houses. Capital treatment sometimes differs between bank- ing and trading books. A repo transaction attracts a charge on the trading book. The formula for calculating the capital allocation (CA) is:   CA = max{[(Cmv- Smv)´8% ´RW ],0 } (2)   where   Cmv = the value of cash proceeds Smv = the market value of securities RW = the counterparty risk weighting (as percentage)   As an illustration, the capital allocation for an unsecured loan of $50 million to an OECD (Organization for Economic Cooperation and Devel- opment) bank that has a counterparty risk weighting of 20% is deter- mined as follows:   CA = max{ [ ( $50,000,000 - 0 ) ´ 0.20 ´ 0.08 ], 0 } = $800,000