What is Exposure?
"Investments can go down as well as up" - This is true on a big scale in the capital markets. Exposure is a way of measuring the amount of money at risk between you and your counterparty.
Each trade has two elements to its behaviour. What is it worth today? What might it be worth in the long term?
To measure the value of a trade, you need to take a snapshot of factors such as interest and exchange rates. Using these, you can establish the value of a trade under those conditions. Carrying this out gives you the '
A single trade has a positive mark to market, or a negative market to market, depending on your perspective. In other words, it's currently a profit either to you or your
The long term value of a portfolio changes due to many factors. Trades expire, market prices move and exchange rates move.
Now when someone asks you: what is the exposure on this
Regulators have taken a strong interest in variation and initial margin since 2008. They want to see firms covering their exposures to limit the damage from a future crisis.
This leads to the Uncleared Margin Regulations. The