Company: BCDRF
Filing Date: 2025-07-31
Form Type: 6-K
Source: 0000891478-25-000113
Chunk: 176

Company: Banco Santander, S.A.
Filing Date: 2025-07-31
Form: 6-K
Chunk 176
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 in the current rate.

• Exchange rate risk is the possibility of loss in the value of a position not denominated in the base currency to shifts in exchange rates. A long or open position in a foreign currency may produce a loss if it depreciates against the base currency. Exposures affected by this risk include non-euro currencies investments in subsidiaries and transactions in foreign currency.

• Equity risk is the possibility of loss from open positions in equities to adverse movements in their market prices or expectations about future dividends. This affects positions in shares, stock market indices, convertible bonds and derivatives with shares as the underlying asset (put, call, equity swaps, etc.).

• Credit spread risk is the possibility of loss from open positions in fixed income securities or credit derivatives to adverse movements in credit spread curves or recovery rates associated with specific issuers and types of debt. The spread is the yield difference between financial instruments with a quoted margin over other benchmark instruments, mainly the internal rate of return (IRR) of government bonds and interbank interest rates.

• Commodity price risk is the possibility of loss from adverse movements in commodity prices. Our exposure to this risk is minor and stems mainly from commodity derivatives.

• Volatility risk is the possibility of loss caused by adverse movements in the volatility of interest rates, exchange rates, shares, credit spreads and other factors affecting the value of our portfolio. It is inherent to all financial instruments whose value is affected by volatility (especially options contracts).

These market risks can be partly or fully mitigated with derivatives such as options, futures, forwards and swaps. However, there are other types of market risks that require more complex hedging:

• Correlation risk is the possibility of loss due to an adverse change in the relationship between risk factors (correlation) of the same type (e.g. two exchange rates) or different type (e.g. an interest rate and a commodity price).

• Market liquidity risk originates when Santander or a subsidiary cannot reverse or close a position without an impact on the market price or the transaction cost. Market liquidity risk can arise from a reduction in market makers or institutional investors, the execution of a large volume of transactions or market instability. It could also increase depending on how exposures are distributed among products and currencies.

• Pre-payment or cancellation risk originates when mortgages, deposits and other on-balance-sheet instruments give holders the option to buy or sell them, altering future cash flows. Potential mismatches on the balance sheet pose a risk since cash flows may have to be reinvested at an interest rate that