Cross-currency settlement risk

Cross-currency settlement risk,

Definition of Cross-currency settlement risk:

  1. Cross-currency settlement risk is also called Herstatt risk, after the small German bank whose failure in June 1974 highlighted this risk.

  2. Cross-currency settlement risk is a type of settlement risk in which a party involved in a foreign exchange transaction remits the currency it has sold but does not receive the currency it has bought. In cross-currency settlement risk, the full amount of the currency purchased is at risk. This risk exists from the time that an irrevocable payment instruction has been made by the financial institution for the sale currency, to the time that the purchase currency has been received in the account of the institution or its agent.

  3. Probability of loss in settlement of foreign exchange contracts which arises when a counterparty pays out one currency before receiving a payment of the other. See also Herstatt risk.

Meaning of Cross-currency settlement risk & Cross-currency settlement risk Definition