Open position refers to excessive buying of a certain currency or excessive selling of a certain currency due to failure to cover it in time.

Exposure

Meaning: refers to the position where financial risks exist in financial activities and the degree to which they are affected by financial risks. Exposure is an important concept in financial risk, but it is not the same as financial risk. Financial assets with large exposures may not necessarily carry high risks.

The more common term "exposure" is used in risk analysis, indicating where there is exposure to risk. For example, if a company is given a loan of RMB 1 billion, of which RMB 800 million has an external guarantee, and of which RMB 200 million has no guarantee, then we say the risk exposure is RMB 200 million. The same statement is used in other fields, futures, etc.

There are usually three types of exposure

1. Trading exposure

2. Operating or economic exposure

3. Conversion exposure

Open position

Type:

(1) Single currency open position refers to the spot net open position of each currency , the sum of forward net open positions and adjusted option positions, reflecting the foreign exchange risk of a single currency.

①Spot net open position. The current net open position refers to the open position formed by the business included in the balance sheet, which is equal to the current assets minus current liabilities on the balance sheet.

②Forward net open position. The forward net open position mainly refers to the open position formed by buying and selling forward contracts, the amount of which is equal to the purchased forward contract position minus the sold forward contract position.

③Option open position. The open position for holding options is equal to the total amount of each foreign exchange that the bank might need to buy or sell as a result of holding the options.

④Other open positions, such as foreign currency-denominated guarantee business and similar commitments, etc., if they may be used passively and are irrevocable, they should be recorded as open foreign exchange positions.

Adding the above four elements, we get a single currency open position. If the open position of a certain foreign exchange is positive, it means that the institution is long in that currency; if the open position of a certain foreign exchange is negative, it means that the institution is short in that currency.

(2) Total open position

The first is the cumulative total open position method. The cumulative total open position is equal to the sum of longs and shorts in all foreign currencies. This measurement method is relatively conservative.

The second is the net total open position method. Net total open position is equal to the difference between the total long and the total short positions in all foreign currencies. This measurement method is more radical.

The third is the short side method. First, the longs and shorts for each currency are summed separately (referred to as the sum of net long positions and the sum of net short positions, respectively); second, the two totals are compared; and finally, the larger total is taken as the bank's total exposure position. The advantage of the short-side method is that it not only takes into account the risks of both long and short positions, but also takes into account the offsetting effect between them.