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Sagot :
A situation where a firm may or may not be exposed to transaction exposure based on factors not fully under its control is termed Contingent exposure.
The term "Contingent Exposure" refers to the risk exposure that the operating lender has recorded in its internal records as being associated with a derivative instrument entered into in accordance with this agreement. If the operating lender cannot be contacted, the agent will calculate the exposure by using its standard banking criteria for transactions of a similar nature.
Understanding contingent exposures is essential for risk management in the wake of the 2008 financial crisis. Despite being able to identify current contingent exposure for letters of credit granted or swing line loans advanced, the client lacked a clear, systematic understanding of its entire prospective contingent exposure (i.e., the total amount up to which it could potentially issue letters of credit).
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