Settlement Risk vs. Credit Risk R31 P. 142-144

CFA Level III Derivatives
#1

Curriculum says:

credit risk is a financial risk from a loss caused by a counterparty’s or debtor’s failure to make a timely payment or by the change in value of a financial instrument based on changes in default risk. Also called default risk.

settlement risk is a non-financial risk is, when settling a contract, the risk that one party could be in the process of paying the counterparty while the counterparty is declaring bankruptcy.

I’m having trouble understanding the difference can someone clarify? thanks

#2

I think Settlement Risk is just specific example of broad credit risk. Settlement risk occurs when counterpraty does not fulfill its obligation during settlment. As reading says Herstatt bank was the famous example of this risk.

#3

thanks