easy · FRM Part 1 Financial Markets and Products
In the context of derivative markets, what does the term 'counterparty credit risk' specifically refer to for an OTC forward?
- The risk that a clearinghouse fails to fully honor its performance guarantee to participants.
- The risk that the trader is financially unable to meet the daily variation margin call from the clearinghouse.
- The danger that the party on the other side of the contract defaults before the final settlement date.
- The risk that the price of the underlying asset moves adversely against the holder's long position.
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