Mismatch Risk

AAA

DEFINITION of 'Mismatch Risk'

1) A category of risk that refers to the possibility that a swap dealer will be unable to find a suitable counterparty for a swap transaction for which it is acting as an intermediary.

2) The risk that an investor has chosen investments that are not suitable for his or her circumstances.

INVESTOPEDIA EXPLAINS 'Mismatch Risk'

1) A number of different factors can make it difficult for a swap bank to find a counterparty for a swap transaction. For example, wanting to participate in a swap with a very large notional principal may limit the number of available counterparties.

2) A mismatch between investment type and investment horizon can be a source of mismatch risk. For example, mismatch risk would exist in a situation where an investor with a short investment horizon (such as one who is near retirement) invests heavily in speculative hi-tech stock. Typically, investors with short investment horizons should focus on less speculative investments such as fixed income securities and blue chip equities.

RELATED TERMS
  1. Swap Dealer

    An individual who acts as the counterparty in a swap agreement ...
  2. Time Horizon

    The length of time over which an investment is made or held before ...
  3. Financial Intermediary

    An entity that acts as the middleman between two parties in a ...
  4. Swap

    Traditionally, the exchange of one security for another to change ...
  5. Risk

    The chance that an investment's actual return will be different ...
  6. Market Maker

    A broker-dealer firm that accepts the risk of holding a certain ...
RELATED FAQS
  1. How are commodity spot prices different than futures prices?

    Commodity spot prices and futures prices are different quotes for different types of contracts. The spot price is the current ... Read Full Answer >>
  2. How do commodity spot prices indicate future price movements?

    Commodity spot prices indicate future price movements because commodity futures prices are calculated using spot prices. ... Read Full Answer >>
  3. Where did market to market (MTM) accounting come from?

    Mark to market accounting has been around in concept since the stock market began; however, it was not officially part of ... Read Full Answer >>
  4. Why is market to market (MTM) accounting considered controversial?

    Mark to market accounting has been an integral component of generally accepted accounting principles (GAAP) in the United ... Read Full Answer >>
  5. Should you calculate Value at Risk (VaR) for counterparty credit risk?

    Value at risk (VaR) calculations may be helpful for risk management when trading credit default swaps and other derivatives ... Read Full Answer >>
  6. What is the difference between economic value and market value?

    The difference between market value and economic value is that the former represents the minimum amount the customer is willing ... Read Full Answer >>
Related Articles
  1. Investing Basics

    The Seasons Of An Investor's Life

    From a tentative spring to a comfortable winter, learn how to weather the phases of your investing journey.
  2. Active Trading

    How Companies Use Derivatives To Hedge Risk

    Derivatives can reduce the risks associated with changes in foreign exchange rates, interest rates and commodity prices.
  3. Bonds & Fixed Income

    Asset Allocation In A Bond Portfolio

    An investor's fixed-income portfolio can easily beat the average bond fund. Learn how and why!
  4. Investing Basics

    What Does Spot Price Mean?

    Spot price is the current price at which a security may be bought or sold.
  5. Investing Basics

    What Does a Clearing House Do?

    A clearing house is a third-party agency or separate entity that acts as a go-between for buyers and sellers in financial markets.
  6. Investing Basics

    What is Meant by Implied Volatility?

    The estimated volatility of a security's price.
  7. Economics

    How Gloomy Headlines Support Eurozone Stocks

    It's hard to miss the many headlines on Europe lately with news ranging from Greece’s debt saga to the details of ongoing European Central Bank stimulus.
  8. Investing Basics

    Explaining Credit Spread

    A credit spread has two different meanings, one referring to bonds, the other to options.
  9. Options & Futures

    How Are Futures & Options Taxed?

    We present a basic introduction to the US tax processes of futures and options.
  10. Fundamental Analysis

    What is a Forward Rate?

    Forward rate is used in both bond and currency trading to represent the current expectations of future bond interest rates or currency exchange rates.

You May Also Like

Hot Definitions
  1. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  2. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  3. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  4. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  5. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
  6. Risk-Return Tradeoff

    The principle that potential return rises with an increase in risk. Low levels of uncertainty (low-risk) are associated with ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!