The head of NAMA warned the Government in March his agency was being forced to take on "significant foreign exchange risk" by buying banks' overseas loans using euro.
In a letter sent to Finance Minister Brian Lenihan, the head of NAMA Brendan McDonagh said making NAMA buy dollar and sterling loans using euro "creates significant foreign exchange risk on NAMA".
"The risk is that the foreign currency will weaken against the euro thereby creating foreign exchange losses for NAMA," wrote Mr McDonagh in a letter sent in March.
Mr McDonagh explained that much of its assets would end up in foreign currencies, but its liabilities would be in euro, creating an "asset/liability mismatch".
The banks lobbied the Government and NAMA to have their loans purchased using NAMA bonds denominated in euro and in this way they would be able to lodge these with the ECB as collateral in exchange for cash. However, this has left NAMA with a significant risk which has to be hedged against.
Making the situation worse, Mr McDonagh pointed out, was that many of the foreign currency loans it was buying would be on interest roll up and not producing any income.
"It will not be possible for NAMA to totally hedge this foreign currency exposure efficiently," wrote Mr McDonagh.
He acknowledged that one way around the problem would be if NAMA only paid for foreign currency loans with foreign currency bonds.
"However, the board recognises this may not achieve the Government's policy objective of creating readily usable euro reserve liquidity for the participating institutions," he added.
It is understood NAMA subsequently entered into a hedging position, after receiving approval from the Department of Finance.
Ironically, the recent weakness of the euro, mainly due to the European debt crisis, has eliminated this problem for now. But currencies in any one calendar year can be volatile and holders of dollars or sterling can be vulnerable to so-called economic 'shocks'.
The key leaders of NAMA are due to appear before the Oireachtas today to talk about a range of issues, including pay at the organisation. They are also going to be asked about suggestions that debts could be written off for some developers in special circumstances.