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Herstatt Risk |
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Herstatt risk The risk of loss in foreign exchange trading that one party will deliver foreign exchange but the counterparty financial_institution will fail to complete its end of the contract. This is also referred to as settlement risk. Herstatt Risk The risk that a foreign exchange trade will not settle. For example, a buyer may not receive delivery of the currency he/she bought by the settlement date, or the seller may not receive payment. This may occur because of the negligence or deliberate withholding by one party or the other. If a party does not receive the securities or payment, he/she is not obligated fulfill his/her end of the bargain until delivery or payment is made, but this can render him/her unable to conduct other activities that would advance his/her investment goals. Herstatt risk takes its name from the Herstatt bank, which notoriously failed to settle currency transactions and went into bankruptcy in 1974. Want to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit the webmaster's page for free fun content. |
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