Okuzeka
Finance & Banking vocabulary · Risk Management

Wrong-way risk

Meaning in finance & banking, with examples

nounAdvanced term

In finance & banking, wrong-way risk means: Risk arising when exposure to a counterparty increases as that counterparty becomes less creditworthy.

In Turkish: ters yön riski

How it is used

Use for adverse dependence between exposure and credit quality, not simply a losing trade.

Example sentences

  1. The bank identified wrong-way risk in a hedge with the commodity producer.

    Market stress can increase both the claim and the producer's default risk.

  2. Collateral linked to the counterparty's own shares increased wrong-way risk.

    Protection may weaken precisely when the counterparty deteriorates.

Common collocations

  • specific wrong-way risk
  • wrong-way risk assessment
  • counterparty riskThe risk that the other party in a financial deal, such as a derivative, repo or FX trade, fails to pay or deliver what it owes before the deal is completed.
  • collateralAn asset, such as property, cash or securities, that a borrower pledges to a lender and that the lender can sell if the loan is not repaid.

More terms: Risk Management

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This page explains English vocabulary for learners. It is not financial advice.