Importance The article focuses on the development of risk management in banking. Currency policies should be balanced in relation to individuals, depositors, and banks so to optimize the risk of any deal. It is reasonable to alter tax treatment of foreign exchange difference by forecasting the median changes in fluctuating foreign exchange rates of the currency basket. Objectives The research reveals the substance of foreign currency risks in the contemporary banking system, find methods for their assessment and mitigation through portfolio-based and median approaches. The research also pursues a comprehensive analysis of foreign currency risks and proposes measures to mitigate them. Methods We applied portfolio-based and median approaches and optimization methods. Results The article provides a comprehensive overview of principal banking risks and classifies them. We also determine parameters of the binary and dual-criteria nonlinear optimization model. We suggest using the currency risk (dispersion), yield, currency risk concentration of the portfolio as stable criteria. Conclusions and Relevance We conclude on the need to normalize optimization criteria. We devised tools for optimizing the credit portfolio by analyzing those criteria within the Pareto efficiency portfolio. We believe the currency risk of bank's transactions with assets should be adjusted to the credit risk, while transactions with liabilities should involve the liquidity risk. The findings can be useful for purposes of foreign currency transactions and banking.
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