Question

The risk that a central bank will not make the necessary transfer of foreign currency to complete a currency settlement is known as ________ risk. Group of answer choices settlement exchange rate Interest-rate Herstatt

Answer 1

Herstatt.

Step-by-step explanation:

The risk that a central bank will not make the necessary transfer of foreign currency to complete a currency settlement is known as herstatt risk.

Herstatt risk is also known as cross-settlement risk or settlement risk. It was named after Bankaus Herstatt (a German bank) that failed in June 1974 when it was supposed to settle a contract for a payment received from the other party and consequently, amounting to a loss of about $602,000,000.

Hence, is mainly a loss in foreign exchange transactions where a party defaults after receiving money from another.