Strategic Shareholder Climate and Risk Financial Financial Barclays PLC 362 report information sustainability report Governance review review statements Annual Report 2022 Risk performance - Treasury and Capital risk (continued) Foreign exchange risk (audited) The Group is exposed to two sources of foreign exchange risk. a) Transactional foreign currency exposure Transactional foreign currency exposures represent exposure on banking assets and liabilities, denominated in currencies other than the functional currency of the transacting entity. The Group’s risk management policies are designed to prevent the holding of significant open positions in foreign currencies outside the trading portfolio managed by Barclays International which is monitored through VaR. Banking book transactional foreign exchange risk outside of Barclays International is monitored on a daily basis by the market risk function and minimised by the businesses. b) Translational foreign exchange exposure The Group’s investments in overseas subsidiaries and branches create capital resources denominated in foreign currencies, principally USD and EUR. Changes in the GBP value of the net investments due to foreign currency movements are captured in the currency translation reserve, resulting in a movement in CET1 capital. The Group’s strategy is to minimise the volatility of the capital ratios caused by foreign exchange movements, by matching the CET1 capital movements to the revaluation of the Group’s foreign currency RWA exposures. Functional currency of operations (audited) Structural Borrowings which Derivatives which currency Remaining Foreign currency hedge the net hedge the net exposures pre- structural currency net investments investments investments economic hedges Economic hedges exposures £m £m £m £m £m £m 31 December 2022 USD 27,441 (7,363) (2,086) 17,992 (8,688) 9,304 EUR 9,776 (5,461) (3) 4,312 (283) 4,029 JPY 689 — (197) 492 — 492 Other currencies 3,330 — (1,676) 1,654 (279) 1,375 Total 41,236 (12,824) (3,962) 24,450 (9,250) 15,200 31 December 2021 USD 25,958 (7,707) (2,356) 15,895 (7,389) 8,506 EUR 8,453 (3,408) (3) 5,042 (268) 4,774 JPY 614 (97) — 517 — 517 Other currencies 2,448 — (64) 2,384 — 2,384 Total 37,473 (11,212) (2,423) 23,838 (7,657) 16,181 Economic hedges relate to exposures arising on foreign currency denominated preference share and AT1 instruments. These are accounted for at historical cost under IFRS and do not qualify as hedges for accounting purposes. The gain or loss arising from changes in the GBP value of these instruments is recognised on redemption in retained earnings. During 2022, total structural currency exposure net of hedging instruments decreased by £1.0bn to £15.2bn (2021: £16.2bn). Foreign currency net investments increased by £3.7bn to £41.2bn (2021: £37.5bn) driven predominantly by a £1.5bn increase in USD, £1.3bn increase in EUR and £0.9bn increase in other currencies. The hedges associated with these investments increased by £3.2bn to £16.8bn (2021: £13.6bn). Pension risk review The UK Retirement Fund (UKRF) represents approximately 96% (2021: 97%) of the Group’s total retirement benefit obligations globally. As such this risk review section focuses exclusively on the UKRF. The UKRF is closed to new entrants and there is no new final salary benefit being accrued. Existing active members accrue a combination of a cash balance benefit and a defined contribution element. Pension risk arises as the market value of the pension fund assets may decline, investment returns may reduce or the estimated value of the pension liabilities may increase. Refer to the Management of pension risk section in the Barclays PLC Pillar 3 Report 2022 (unaudited) for more information on how pension risk is managed. Assets The Trustee Board of the UKRF defines its overall long-term investment strategy with investments across a broad range of asset classes. This results in an appropriate mix of return seeking assets as well as liability matching assets to better match future pension obligations. The two largest market risks within the asset portfolio are credit spread and growth assets. The split of scheme assets is shown within Note 33 to the financial statements. The fair value of the UKRF assets was £24.7bn as at 31 December 2022 (2021: £34.7bn). Liabilities The UKRF retirement benefit obligations are a series of future cash flows with relatively long duration. On an IAS 19 basis these cash flows are sensitive to changes in the expected long-term price inflation rate (RPI) and the discount rate (GBP AA corporate bond yield): • An increase in long-term expected inflation corresponds to an increase in liabilities;