Aggregate Risk

Posted in Finance, Accounting and Economics Terms, Total Reads: 492
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Definition: Aggregate Risk

Aggregate risk is the total risk of foreign exchange contracts (spots/forwards) borne by any financial institution like banks or certain type of premium investors from a single client. It can also be defined as the total exposer of an entity in forex market due to currency rate fluctuations.


In order to minimize the exposer to adverse financial developments like insolvency or credit crunch financial institutions closely follow aggregate risk. Banks has set position limits (threshold) that restricts the total dollar amount of open transactions (which is used for new contracts) at a certain point of time. Thresholds on aggregate risk are made fixed at a high value for those clients who have sound ratings or long standing counter parties. For new clients or for clients having lower ratings the Limits will be low.

 

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