Counterparty Risk

Business / Taxes / Counterparty Risk: Counterparty risk is the risk that the person or institution with whom you have entered a financial contract — who is a counterparty to the contract — will default on the obligation and fail to fulfill that side of the contractual agreement. In other words, counterparty risk is a type of credit risk. Counterparty risk is the greatest in contacts drawn up directly between two parties and least in contracts where an intermediary acts as counterparty. For example, in the listed derivatives market, the industry’s or the exchange’s clearinghouse is the counterparty to every purchase or sale of an options or futures contract. That eliminates the possibility that the buyer or seller won’t make good on the transaction. The clearinghouse, in turn, protects itself from risk by requiring market participants to meet margin requirements. In contrast, there is no such protection in the unlisted derivatives market where forwards and swaps are arranged.

Other Words for Risk

Risk Noun Synonyms: danger, peril, jeopardy, hazard, chance, gamble

Risk Management Agency

Business / Agriculture / Risk Management Agency: An independent office within USDA that is responsible for the supervision of the Federal Crop Insurance Corporation: the administration and oversight of the federal crop insurance program and any pilo MORE

Risk Premium

Business / Finance / Risk Premium: The reward for holding the risky equity market portfolio rather than the risk-free asset. The spread between Treasury and non-Treasury bonds of comparable maturity. MORE

Risk Management

Business / Accounting / Risk Management: Procedures to minimize the adverse effect of a possible financial loss by: 1) identifying potential sources of loss: 2) measuring the financial consequences of a loss occurring: and 3) using controls MORE