Banking · Counterparty Credit Risk
While managing counterparty credit risk in financial markets, banks distinguish between pre-settlement risk and settlement risk. Settlement risk is most accurately described as the risk that:
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1the counterparty will default well before the scheduled value date of the transaction
- 2market prices will move unfavourably before the contract matures, affecting the collateral value
- 3a party performs its obligation under a contract but the counterparty fails to perform its obligation at the time of settlement✓
- 4the credit rating of the counterparty is downgraded during the tenure of the derivative contract
Correct answer
a party performs its obligation under a contract but the counterparty fails to perform its obligation at the time of settlement
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