Qhich question, When calculating the Potential future exposure of a FOREX Forward, do we add the notional amount to the potential future exposure on the exact day of settlement? meaning that if a 30 day FOREX fwd has a potential future exposure of 20% on day 29, so is the exposure equal on the 30 day to 20%+notional=120% (to account for settlement risk) or not....!!!Do we hit the counterparty limits with 100% of notional for a FOREX Spot transactions or just the potential future exposure for example 3% of notional????would appreciate the help,cheers

i shouldn't think sothe PFE on day 29 is the MTM p+l.

thx daveangel for help, So if i understand correctly the PFE is only for Pre-settlement risk and the notional (100%) for FX Sport and FWD are never added to the PFE on the day of the exchange...is that correct?? How can we cover then Settlement Risk??Would appreciate confirmation....thx a million

are you asking how you mitigate against the risk of your counterpart not delivering their side of the trade ? Say you make a payment to them for your part of trade say deliver USD and they dont deliver the EUR ?

QuoteOriginally posted by: daveangelare you asking how you mitigate against the risk of your counterpart not delivering their side of the trade ? Say you make a payment to them for your part of trade say deliver USD and they dont deliver the EUR ?Yeap exactly......How??Could you confirm that the PFE is only for Pre-settlement risk and the notional (100%) for FX Sport and FWD are never added to the PFE on the day of the exchange...did i understand it correctly?????

QuoteOriginally posted by: tikoQuoteOriginally posted by: daveangelare you asking how you mitigate against the risk of your counterpart not delivering their side of the trade ? Say you make a payment to them for your part of trade say deliver USD and they dont deliver the EUR ?Yeap exactly......How??Could you confirm that the PFE is only for Pre-settlement risk and the notional (100%) for FX Sport and FWD are never added to the PFE on the day of the exchange...did i understand it correctly?????I am not a settlements person but it seems to me that the risks pre-settlement and post-settlement are different. Pre-settlement the risk is a net whereas post you have gross risk. Isn't this where CLS Bank comes in ?

thanks pal for help, i appreciate it