Counterparty Risk (Default Risk) Explained in One Minute
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- čas přidán 29. 08. 2024
- Counterparty risk or default risk is basically the risk that the other party won't fufill its obligation towards you. It's one of the most important terms investors need to understand yet unfortunately, most people don't pay all that much attention to the counterparty risk dimension of the equation.
Huge, huge mistake.
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Wow, I've always been interested in economics. This video is very well done.
Really appreciate the kind words Edgar, thanks a lot! :)
educating people one minute at a time
:)
Thank you very much Sir for creating this video! Your explanation is great. Plus, the graphics surely helped us to understand this easier. Keep safe!
Thank you for the kind words, generous comments like yours make it all worth it :)
Right but the physical cash has a counterparty too since it was issued by a private bank with shareholders so also has default risk, physical gold was issued by the universe so you can't compare the two. I'm not sure why you did, your example fails logically at the first step.
Neither have default risk at the first step because there's no contract or obligation between two parties. The individual just owns cash or gold.
Underrated comment. Cash in the USA is Federal Reserve Notes. They are promissory notes from the Federal Reserve, a private bank. The Federal Reserve is your counterparty.
Would signing a lease with someone be another example of this?
It could, sure :)
At the end of the day, wherever there's the possibility of a negative outcome caused by the other party not respecting his end of whichever agreement you have, the counterparty risk dimension definitely needs to be taken into consideration.
awesome video！
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lol, that big true, many people dont want or dont like to know it
Ibleedgreenandblue
That's why I buy Bitcoin and practice self custody cold storage.
Always good not to keep too much on exchanges, just don't forget that Bitcoin comes with its own set of risks (just not counterparty risks) :)
@@OneMinuteEconomics bitcoin is not as safe as gold, but less risky than bonds and stocks.
Not good example
What would a better one be, in your opinion?