easy · FRM Part 1 Financial Markets and Products
Which of the following describes 'settlement risk' (also known as Herstatt risk)?
- The risk that a bank cannot meet short-term cash obligations because depositors trigger a sudden bank run.
- The risk that market prices move adversely between the trade date and the agreed settlement date.
- The risk that one party delivers on a trade while the counterparty fails to deliver its obligation.
- The risk that a counterparty's credit rating is downgraded before the contract reaches expiry.
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