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The other party in any transaction. For an exporter, the counter-party is the foreign customer; for a lender, the counter-party is the borrower. In any transaction, counter-party risk is the risk that the other parties may fail to fulfil their side of any contract or informal bargain. In many markets, market-makers can reduce counter-party risks for both sides by substituting themselves as the counter-party for both outside buyers and sellers. Outsiders are left dealing with ‘the market’, and do not have to worry about the solvency or honesty of a particular trading partner.

Subjects: Economics.

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