Counterparty
From Open Risk Manual
Definition
A Counterparty is (in general) any natural or legal person (Legal Entity that is party to a legal Contract. In Credit Risk context is denotes any party to which another Natural Person or legal person has credit Exposure (faces credit risk).
There are many related terms, e.g: Obligor, Debtor, Borrower, Client with slightly different meaning and used in different context.
The term Counterparty is used in particular in the context of bilateral financial contracts (usually a derivatives contract) where the relationship is symmetric (the two involved entities may have comparable risk profiles and there is no explicity lender / borrower relation).
Issues and Challenges
- When contracting with a complex corporate entity there may be ambiguity as to who precisely is the counterparty, due to the existence of many Related Counterparties
