7. In contrast, banks that do not immediately identify their final and failed receipts cannot pinpoint the exact size of their FX settlement exposures. The uncertainty they face reflects their inability to know which of their Status U trades have or have not actually settled (i.e. they do not know the amount of bought currencies that should - but might not - have been received on time).

8. Faced with this uncertainty, a bank should be aware of both its minimum and maximum FX settlement exposure. For instance, a bank that only measures and controls its minimum exposure could, in adverse circumstances, experience a much larger unexpected and undesirable actual exposure. On the other hand, a bank that only monitors its maximum exposure might, if it believes that its actual exposure usually falls well short of this amount, set up excessively accommodative internal controls that would not prevent an unexpected and undesirable jump in its actual exposure.

9. Recognising the uncertainty that might surround its actual FX settlement exposure, a bank can use the following general guidelines to measure its minimum and maximum exposure on the basis of the current status of its unsettled trades:

Minimum exposure: Sum of Status I and F trades. This is the value of the trades for which a bank can no longer unilaterally "stop payment" of the sold currency but has not yet received the bought currency.

Maximum exposure: Sum of Status I, F and U trades. This equals a bank's minimum exposure plus the amount of bought currencies that should - but might not - have been received.

10. A bank can also project its FX settlement exposure using its knowledge that each of its trades will go through a predictable change in status, based on its current settlement practices. For example, if a bank sells yen and buys dollars, the trade will have Status R from the time it is executed until the time the bank's yen payment can no longer be cancelled unilaterally. The trade will then have Status I until the time that the final dollar receipt is due. Once the final receipt of dollars is due, the trade will have Status U until the bank knows whether or not the purchased dollars were, in fact, received. Then, depending on the answer, the trade will be classified either as Status S (if the final receipt of dollars is verified) or as Status F (if the bank learns that it failed to receive the dollars from its counterparty). A bank can use this predictable change in status - as well as the possibility that it will not receive some or all of the currencies it bought on time - to project the future minimum and maximum exposures associated with the trades it has executed.

11. The potential minimum exposure that a bank will face at a point in the future will equal the value of the trades with Status F at the time of the projection plus the trades that will have Status I at that future point. This is the amount for which the bank will be at risk if all of its currently due but uncertain receipts (Status U trades) have, in fact, been received and no additional fails occur in the future.

12. The potential maximum exposure that a bank will face at a point in the future will equal its projected minimum exposure, plus the fails it may identify over the projection period, plus the amount of irrevocably bought currencies that should - but might not - have been received by that time (i.e. the trades that are projected to have Status U). This is the total amount for which the bank might possibly be at risk at that point in the future.

13. On the basis of the bank's current settlement practices, it is a straightforward calculation to measure both its potential minimum exposure and its Status U trades at each point in the future. Its future identified fails, however, can take on a range of values from 0 to 100% of the expected receipts that will be reviewed during the projection interval. This adds an element of uncertainty even for a bank that always identifies its final and failed receipts of bought currencies as soon as they are due.

14. If, at one extreme, it turns out that a bank has no outstanding identified fails at some point in the future, its potential maximum exposure at that time (i.e. its Maximum exposure if identified fails = 0%) will simply equal its projected minimum exposure plus its projected Status U trades. At the other extreme, a bank might learn that none of the expected receipts it reviewed over the projection interval came in on time. In this case, its potential maximum exposure at the end of that interval (i.e. its Maximum exposure if identified fails = 100%) will equal the value of these fails plus the sum of its projected minimum exposure and its projected Status U trades.