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Date: May 27th, 2021 10:16 PM Author: exciting massive business firm
party risk mitigation is done to is to reduce the credit exposure (current and/or future). The counterparty may default and the aim is to minimise the resulting loss. The most common ways of doing this are netting and collateral.
Closeout netting is a very standard risk mitigation method for counterparty risk. However, in most business relations, netting is not a significant issue. Generally, an institution either buys from or sells to another firm, but rarely does both simultaneously. Therefore, in the event of bankruptcy, few if any contracts offset one another. However, OTC derivatives markets often generate large numbers of bi-directional transactions between counterparties. Netting allows amounts owed to a counterparty to be offset with those owed by the counterparty to arrive at a net obligation or claim.
(http://www.autoadmit.com/thread.php?thread_id=4844178&forum_id=2#42532967) |
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