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.
|||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.