Counterparty risk is the potential exposure that any individual firm bears that the second party to any financial contract will be unable to fulfill its obligations under any contract.
Given an incomplete sentence related to potential exposure of the contract.
We are required to fill the blank with the appropriate word which means that the potential exposure that any individual bears that the second party to any financial contract will not be able to fulfill its obligations under a contract.
The appropriate word is counterparty risk.
Counterparty risk is basically the probability that the other party in an investment, credit,or trading transaction may not fulfill its part of the deal and may default on the contractual obligations.
Hence counterparty risk is the potential exposure that any individual firm bears that the second party to any financial contract will be unable to fulfill its obligations under any contract.
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