Counterparty Risk

Counterparty risk, also known as a default or credit risk, is a risk that a counterparty/product issuer will not pay what it is obligated to do on a bond, derivative, or structured product, or other transaction when due.  Financial product issuers may find themselves unable to pay when required to do so, either due to temporary liquidity issues or longer term internal business issues which could include failure of another financial institution providing financial hedges.