If a party in a matched swap defaults,the financial intermediary faces:
A) credit risk.
B) default risk.
C) settlement risk.
D) default and settlement risk.

Question

Quizplus · Accepted Answer

If a party in a matched swap defaults, both default and settlement risk are present. Default risk refers to the risk that the non-defaulting party will not receive the full value of the swap, while settlement risk refers to the risk that one or both parties will not fulfill their obligations at the same time resulting in financial loss. Additionally, the financial intermediary may also face credit risk if it has extended credit to the defaulting party.

If a Party in a Matched Swap Defaults,the Financial Intermediary