Herstatt risk(redirected from Herstatt Risks)
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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved