Definition of 'Cross-Currency Settlement Risk'
A type of settlement risk in which a party involved in a foreign exchange transaction remits the currency it has sold, but does not receive the currency it has bought. In cross-currency settlement risk, the full amount of the currency purchased is at risk. This risk exists from the time that an irrevocable payment instruction has been made by the financial institution for the sale currency, to the time that the purchase currency has been received in the account of the institution or its agent.
Also called Herstatt risk, after the small German bank, whose failure in June 1974 exemplified this risk.
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