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Related to Counterparty: Counterparty credit risk


The other participant, including intermediaries, in a swap or contract.


The persons or institutions engaging in a transaction. That is, the buyer and the seller of a good are the counterparties to the sale of that good. While it could apply to any transaction, the term is most common when referring to the counterparties of a swap.


In any financial contract, the persons or institutions entering the contract on the opposite sides of the transaction are called the counterparties.

For example, if you sign a contract to sell an item that you produce to a buyer, you and the buyer are counterparties to the contract.

Similarly, the counterparties in financial transactions known as forwards or swaps are the banks or corporations that make deals between themselves to protect future cash flows or currency values.

References in periodicals archive ?
Supervisory staff is monitoring each bank's management of hedge fund counterparty exposures as well as the bank's efforts to address any identified risk management shortcomings.
This can be achieved through what we call "stress tests," where a bank conducts "what if" analyses of how credit exposures to a single counterparty could grow under these market conditions.
Among the areas to be addressed are (1) the credit approval process and ongoing monitoring of credit quality, including the availability of information on counterparties and its use in making credit decisions; (2) procedures for estimating potential future credit exposures, including stress testing to gauge exposures in volatile and illiquid markets; (3) approaches to setting limits on counterparty credit exposures; and (4) policies regarding the use of collateral to mitigate counterparty credit risks.
Supervisors of banks and security firms must assess whether current procedures regarding stress testing and counterparty assessment could have been improved to enable counterparties to take steps to insulate themselves better from LTCM's debacle.
Such facilities potentially could make management of counterparty credit risks and liquidity risks even more effective.
Moreover, in some cases, a dealer in financial transactions may assume responsibilities beyond the role of a mere counterparty.