What is Counterparty Risk?

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Counterparty Risk is the potential for financial loss resulting from a trading partner's failure to fulfill their contractual obligations in a transaction, a critical concern in over-the-counter (OTC) markets like foreign exchange (FX) where bilateral agreements dominate.

Counterparty Risk

What is Counterparty Risk?

What are the primary types of Counterparty Risk encountered in Foreign Exchange (FX) trading, and how do they differ?

How did the 2008 Global Financial Crisis and subsequent regulatory reforms like Basel III fundamentally change the management of Counterparty Risk?

What are the most effective risk mitigation techniques used by financial institutions to manage Counterparty Risk in OTC derivatives?

How is the cost of Counterparty Risk quantified and priced into financial transactions, and what is the role of Credit Valuation Adjustment (CVA)?

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