Authority limits

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Limits set by treasury to the number of dealers allowed to carry out transactions, the value of the transactions they can execute and the number of people giving authorisation.

More generally, limits can also be applied to the financial risk that a company or organisation is willing to bear.

Limits can, for example, be set for the proportion of foreign exchange exposures and the time period within which they should be hedged.

The company/organisation may also, for liquidity reasons, limit the types of deals that it wants to have transacted.

Another area of authority limit concerns the level of counterparty credit exposures resulting from deals such as those in derivative products.

In some exceptional situations, the dealer may have to exceed the risk and authority limits set by the management.

In such cases, it is essential for the dealer to have the transaction approved by the relevant responsible manager.

See also