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    Question

    The ------ risk arises from non-performance of the

    trading partners
    A Portfolio risk Correct Answer Incorrect Answer
    B default risk Correct Answer Incorrect Answer
    C commodity risk Correct Answer Incorrect Answer
    D counterparty risk Correct Answer Incorrect Answer
    E market risk Correct Answer Incorrect Answer

    Solution

    Counterparty risk is a variant of credit risk. The counterparty risk arises from nonperformance of the trading partners. The non-performance may arise from counterparty’s refusal/inability to perform due to adverse price movements or from external constraints that were not anticipated by the principal. The counterparty risk is generally viewed as a transient financial risk associated with trading rather than standard credit risk.

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