The total amount of exposure an institution or an investor has to foreign exchange counterparty risk from a single client.

Foreign exchange contracts (spot and forward) all have counterparties responsible for fulfilling the other side of an agreement. If an institution (e.g. a bank) has too many agreements with one counterparty they are exposing themselves to significant risk if that counterparty then defaults.

Institutions generally diversify their contracts by engaging with a number of clients so that aggregate risk is minimised.

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