Risk glossary

 

Credit risk

Credit risk, or default risk, is the risk that a financial loss will be incurred if a counterparty to a (derivatives) transaction does not fulfil its financial obligations in a timely manner. It is therefore a function of the following: the value of the position exposed to default (the credit or credit risk exposure); the proportion of this value that would be recovered in the event of a default; and the probability of default.

Credit risk is also used loosely to mean the probability of default, regardless of the value that stands to be lost.

* see also settlement risk

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