Aggregate Risk

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  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. Position Limit

    The highest number of options or futures contracts an investor ...
  4. Settlement Risk

    The risk that one party will fail to deliver the terms of a contract ...
  5. Exposure At Default - EAD

    A total value that a bank is exposed to at the time of default. ...
  6. Insurance Company Credit Rating ...

    The opinion of an independent agency regarding the financial ...
Related Articles
  1. Personal Finance

    Using Economic Capital To Determine Risk

    Discover how banks and financial institutions use economic capital to enhance risk management.
  2. Options & Futures

    Manage Risk With Trailing Stops And Protective Put Options

    Using the right strategy can lower the risk of failure and protect your profits.
  3. Options & Futures

    An Introduction To Value at Risk (VAR)

    Volatility is not the only way to measure risk. Learn about the "new science of risk management".
  4. Forex Education

    Understanding Forex Risk Management

    There's risk in every trade you take, but as long as you can measure risk, you can manage it.
  5. Forex Education

    Leverage's "Double-Edged Sword" Need Not Cut Deep

    Learn to cut out losses quickly, leaving profits room to grow.
  6. Credit & Loans

    Can I get a balance transfer if I have bad credit?

    Transferring funds from one credit card to another is often possible with bad credit, but it will likely cost you in interest rates.
  7. Bonds & Fixed Income

    How long will it take for a bond to reach its face value?

    Learn when different savings bonds reach face value, and determine the best time to cash them in to get the highest return on your money.
  8. Forex Strategies

    What are common strategies traders implement when identifying a Bearish Engulfing Pattern?

    Learn how to spot a bearish engulfing pattern, and learn some of the trading strategies you can implement to take advantage of bear momentum.
  9. Trading Strategies

    What is the difference between EE and I Bonds?

    Read about the similarities and differences between the EE and I savings bond programs created by the U.S. Department of Treasury.
  10. Bonds & Fixed Income

    What causes a bond's price to rise?

    Learn about factors that influence the price of a bond, such as interest rate changes, credit rating, yield and overall market sentiments.

You May Also Like

Hot Definitions
  1. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  2. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  3. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  4. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  5. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
  6. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
Trading Center