The existence of counterparty risk
A) has no effect on the contracting parties.
B) is disallowed under current government regulations.
C) results in information costs for buyers and sellers when analyzing the potential creditworthiness of potential trading partners.
D) reduces the risk introduced by forward contracts.

Question

Quizplus · Accepted Answer

Counterparty risk results in additional costs for buyers and sellers to evaluate the creditworthiness of potential trading partners. This can increase the complexity and cost of entering into contracts, particularly in the context of over-the-counter trading.

The Existence of Counterparty Risk