Does Collateralization Completely Eliminate Counterparty Risk? ▴ Learn

Does Collateralization Completely Eliminate Counterparty Risk?

No, collateralization significantly reduces, but does not completely eliminate, counterparty risk. Residual risks remain, such as legal risk (if the collateral agreement is unenforceable), liquidity risk (if the collateral is hard to sell), and wrong-way risk (if the counterparty's default risk is correlated with the value of the collateral).

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