Replacement Risk
A type of risk resulting from a situation in which the holder of a contract knows that the counter party will be unable to meet the terms of a contract, and thus a new replacement contract will have to be entered into. Also known as "replacement-cost risk", which refers to the cost associated with replacing the contract. Investopedia Says:
For example, if a counter party in an agreement fails to fulfill its contractual obligation, you now have to replace whatever it was the counter party was supposed to deliver (e.g. an interest rate, a stock, a commodity, etc). Of course, there is a good chance that you won't be able to do this at the same price, since the market has probably moved since the contract was created. Related Terms:
Credit Risk
Default Risk
Forex - FX
Pre-Settlement Risk
Risk/Return Trade-off
Settlement Risk |