settlement risk


settlement risk
The risk is that one party may perform on its obligation upon settlement of a financial instrument but the other might not, leaving the non-defaulting party in the position of having paid out under the contract and received nothing in return. This arises in transactions where there is a time lag between the parties performing their obligations under the contract. The most common example is in foreign exchange markets because each currency must be delivered in its home country. Due to time zone differences, several hours can elapse between a payment being made in one currency and the offsetting payment being made in another currency.
Related links

Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

Look at other dictionaries:

  • Settlement risk — is the risk that a counterparty does not deliver a security or its value in cash as per agreement when the security was traded after the other counterparty or counterparties have already delivered security or cash value as per the trade agreement …   Wikipedia

  • Settlement Risk — The risk that one party will fail to deliver the terms of a contract with another party at the time of settlement. Settlement risk can be the risk associated with default at settlement and any timing differences in settlement between the two… …   Investment dictionary

  • settlement risk — The possibility that operational problems might interrupt or delay the settlement of a purchase or sale of a financial instrument. American Banker Glossary The risk that one party will deliver and the counterparty will not be able to pay and vice …   Financial and business terms

  • settlement risk — atsiskaitymų rizika statusas Aprobuotas sritis kredito ir finansų įstaigos apibrėžtis Tikimybė patirti nuostolių dėl to, kad atsiskaitymai nebus įvykdyti taip, kaip numatyta sutartyse. atitikmenys: angl. settlement risk vok. Risiko im… …   Lithuanian dictionary (lietuvių žodynas)

  • settlement risk — The risk that a transaction will not be settled as expected (i. e. that an agreed delivery or payment will not be made). It is sometimes referred to as Herstatt risk after a bank of that name, which failed to honour its foreign exchange… …   Big dictionary of business and management

  • Cross-Currency Settlement Risk — A type of settlement risk in which a party involved in a foreign exchange transaction remits the currency it has sold, but does not receive the currency it has bought. In cross currency settlement risk, the full amount of the currency purchased… …   Investment dictionary

  • pre-settlement risk — The risk that a counterparty will default prior to the financial instrument s final settlement. This means that the counterparty may suffer loss because the contract is not carried out but at least (unlike settlement risk) the non defaulting… …   Law dictionary

  • Pre-Settlement Risk — The risk that one party of a contract will fail to meet the terms of the contract and default before the contract s settlement date, prematurely ending the contract. This type of risk can lead to replacement cost risk. For example, let s say ABC… …   Investment dictionary

  • Cross Currency Settlement Risk —    ► See Herstatt Risk …   Financial and business terms

  • Delivery/settlement risk —   Credit risk on the delivery date, resulting in a loss of the incoming cash flow under any contract which entails the exchange of cash flows on the delivery date …   International financial encyclopaedia


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