1. Good morning

2. Counterparty Risk Default
Presented by: Madalsa Timilsina

3. Counterparty Risk
Counterparty risk is the risk to each party of a contract that the counterparty will not live up to its contractual obligations. Counterparty risk is a risk to both parties and should be considered when evaluating a contract.
More specifically, every buyer of an asset must be paired up with a seller who is willing to sell and vice versa.

4. For example, if Joe agrees to lends funds to Mike up to a certain amount, there is an expectation that Joe will provide the cash, and Mike will pay those funds back. There is still the counterparty risk assumed by both parties. Mike might default on the loan and not pay Joe back, or Joe might stop providing the agreed-upon funds.

5. Varying degrees of counterparty risk exist in all financial transactions. If one party has a higher risk of default, then a premium is usually attached for the other party. In retail and commercial financial transactions, credit reports are often used to determine the counterparty credit risk for lenders to make auto loans, home loans and business loans to customers. If the borrower has low credit, the creditor charges a higher interest rate premium due to the risk of default, especially on uncollateralized debt.

6. Thank you