The risk that the party on the other side of a financial transaction fails to meet its obligation is called

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Counterparty risk refers to the potential for the other party in a financial transaction, such as a trade or a contract, not fulfilling their end of the bargain. This could result in financial losses for the party that did meet its obligation. Credit risk is similar but usually refers to the likelihood of a borrower defaulting on a loan. Currency risk refers to the potential for fluctuations in exchange rates to negatively affect the value of a financial transaction. Leverage refers to the use of borrowed funds to increase returns, but also increases the potential for losses.

The Risk That the Party on the Other Side of a Financial