Risk that a party will not fulfill their end of a contract, thus causing the other party to replace the traded item, and potentially incur a loss while doing so. If one party is not able to fulfill the contract for any reason, typically a replacement contract will be drawn up which requires the other party to give back what they've already been given. However, in many situations this is not easy for the party to do, because the value of the traded item is likely not the same as when they originally received it. Therefore, this party could possibly suffer a loss, and this is known as replacement risk.
Related information about replacement risk:
- Replacement Risk Definition | Investopedia
The risk that a contract holder will know that the counterparty will be unable to meet the terms of a contract, creating the need for a replacement contract.
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Definition of replacement risk: Risk that a party will not fulfill their end of a contract , thus causing the other party to replace the traded item, and potentially incur a ...
- Replacement Risk: Definition from Answers.com
Replacement Risk The risk that a contract holder will know that the counterparty will be unable to meet the terms of a contract, creating the need.
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default risk, replacement risk, and settlement risk. Clearly, all over-the-counter ... Replacement risk: after a default, risk that replacing deal under same conditions ...
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Replacement Risk - The consequence of settlement risk. If you have not received payment from your counter party, you now have to enter the market and make ...