Aggregate Risk


DEFINITION of 'Aggregate Risk'

The exposure of a bank, financial institution, or any type of major investor to foreign exchange contracts - both spot and forward - from a single counterparty or client. Aggregate risk in forex may also be defined as the total exposure of an entity to changes or fluctuations in currency rates.

BREAKING DOWN 'Aggregate Risk'

Banks and financial institutions closely monitor aggregate risk in order to minimize their exposure to adverse financial developments - such as a credit crunch or even insolvency - arising at a counterparty or client. This is achieved through position limits that stipulate the maximum dollar amount of open transactions that can be entered into for spot and forward currency contracts at any point in time.

Aggregate risk limits will generally be larger for long-standing counterparties and clients with sound credit ratings, and will be lower for clients who are either new or have lower credit ratings.

  1. Credit Rating

    An assessment of the credit worthiness of a borrower in general ...
  2. Credit Risk

    The risk of loss of principal or loss of a financial reward stemming ...
  3. Settlement Risk

    The risk that one party will fail to deliver the terms of a contract ...
  4. Position Limit

    The highest number of options or futures contracts an investor ...
  5. Exposure At Default - EAD

    A total value that a bank is exposed to at the time of default. ...
  6. Transfer Risk

    The risk that a local currency cannot be converted into the currency ...
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