Series 34 Exam » Forex Trading Risks » Settlement Risk/Herstaat Risk

Settlement Risk/Herstaat Risk

Settlement Risk/Herstaat Risk

Because of the time differences involved in the forex trading markets, there was the possibility that there would be differences in the time of the settlement of the forex contracts.  This meant that it was possible that the counter party would not pay the trader (i.e. you would send them your currency and they would not send you their currency).  This has been mitigated through the CLS system.  Herstatt risk refers to a situation in 1974 when a German bank called Herstatt was shut down by German banking regulators prior to paying off its counterparties; this left the counterparties with substantial losses.

Study Guide >> Forex Trading Risks >>Settlement Risk

This entry was written by vbala, posted on June 3, 2009 at 8:08 pm, filed under Forex Trading Risks. Bookmark the permalink. Follow any comments here with the RSS feed for this post. Post a comment or leave a trackback: Trackback URL.

One Comment

  1. M.A.
    Posted February 8, 2011 at 7:13 pm | Permalink

    *Herstatt* Risk
    I know; the NFA misspelled it too.

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