What does Counterparty mean? Read on to discover the definition & meaning of the term Counterparty - to help you better understand the language used in insurance policies.
Unlike insurance transactions, wherein insurers utilize their considerable leverage to assume risk, capital market transactions require a counterparty. For every seller of a marketable security, there must be a buyer, a counterparty. When risk is offloaded in the capital markets, it must be picked up by a counterparty willing to assume the risk. Because of the need for noncorrelating high-risk positions in diversified investment portfolios, risk-taking counterparties exist.
We hope the you have a better understanding of the meaning of Counterparty.