The UK's official reserves are divided between those that are currency-hedged and those that are unhedged for currency risk. The reserves are primarily financed by issuing securities, either denominated in foreign currency or, sterling (gilts). The proceeds from this issuance are used to acquire foreign currency assets.

The issuance of foreign currency securities is effected through the NLF with the Bank acting as agent. The resulting foreign currency proceeds are treated as being sold for sterling to the EEA, with the NLF advancing the EEA the sterling required as necessary. Where reserves are financed out of sterling, the EEA uses sterling from the NLF to purchase foreign currency assets with asset swaps used to hedge the resulting currency and interest rate risks. The main determinant of which currency to finance out of is cost. The least cost method of financing is determined by comparing, on a swapped basis, the estimated cost of issuing bonds in a foreign currency of a given maturity and nominal amount, with the cost of issuing in sterling.

The 'hedged reserves' comprise portfolios of eligible dollar, euro and yen denominated bonds. Assets in the hedged reserves are hedged for currency risk either by being denominated in the same currency as the liabilities which finance them or by using currency swaps. The hedged reserves are also hedged against interest rate risk through the use of swaps.

The 'unhedged reserves' comprise dollar and euro denominated bonds, gold, the reserve tranche position (RTP) and yen exposure normally obtained largely through forward yen purchases.