The risk that the firm on the 'other side' of a transaction will fail, making it impossible to settle the transaction. A risk that is largely eliminated by the use of a central counterparty.
The risk that the counterparty will not live up to their contractual obligations.
Risk that the trading partner is defaulting due to insolvency, resulting in a loss.
The risk that the other party to an agreement will fail to meet its obligations.
Counterparty (default) risk relates to the risk of loss due to changes in creditworthiness or default by a counterparty. Creditworthiness (credit standing) risk is defined as possible losses arising from the failure of counterparties to discharge their payment obligations, or from a deterioration in their creditworthiness. Counterparty risk is the risk that unrealized profits from transactions in progress cannot be recognized due to the default of a counterparty. This essentially involves replacement risks. Settlement risk is the risk of loss arising from default in the settlement of obligations or from late performance of obligations.
The risk that the other party to an agreement will default. In an options contract, the risk to the option buyer that the option writer will not buy or sell the underlying as agreed.
The partner in a credit facility or transaction in which each side takes broadly comparable credit risk to the other. When a bank lends a company money, the borrower (not counterparty) has no meaningful credit risk to the bank. When the same two agree on an at-the-money forward exchange contract or swap, the company is at risk if the bank fails just as much as the bank is at risk if the counterparty fails (although for the opposite movement in exchange or interest rates). After inception, swap positions often move in/out-of-the-money and the relative credit risk changes accordingly. (See CreditMetrics Technical Document, page 47.)
Exposure to a loss resulting from a default on a payment due. Also known as credit risk.
The risk associated with the financial stability of the party entered into contract with. Forward contracts impose upon each party the risk that the counterparty will default, but futures contracts executed on a designated contract market are guaranteed against default by the clearing organization.
The risk associated with entering into a contractual obligation with another party.
The risk that a counterparty will fail to fulfil its obligations.... more on Counterparty risk
The risk that each party of a contract faces that the other party will default on their obligations.
The risk that contractual terms will not be fulfilled by the other party in a contract.