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ICAAP Key Risks: Counterparty Risk

What is Counterparty Risk?

What should be considered when assessing counterparty risk and how can counterparty risk be defined?

Counterparty Risk

Counterparty risk is often referred to as default risk. It is a risk that a counterparty will not fulfil their obligations to pay – such as on a bond, derivative or other contract.

As such a firm may consider this to be the risk of loss resulting from a counterparty to a transaction defaulting on its obligation prior to the final settlement of the transaction.

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