Settlement Risk Definition
Settlement Risk in foreign exchange (FX) transactions is the risk of loss that occurs when one counterparty pays the currency it sold but does not receive the c
Settlement Risk in foreign exchange (FX) transactions is the risk of loss that occurs when one counterparty pays the currency it sold but does not receive the currency it bought, typically due to the failure of the second counterparty to deliver its side of the transaction before the first payment becomes final. This risk, famously known as Herstatt Risk, arises from the time difference between the final transfer of the two currencies in a cross-border transaction, exposing the paying party to the full principal amount of the trade.