[1][page needed] Well-drafted contracts usually attempt to spell out in explicit detail what each counterparty's rights and obligations are in every conceivable circumstance, though there are limits.
Within the financial services sector, the term market counterparty is used to refer to governments, public banks, national monetary authorities and international monetary organisations such as the World Bank Group that act as the ultimate guarantor for loans and indemnities.
The term may also be applied, in a more general sense, to companies acting in this role.
The term is generally used in this context in relation to "counterparty risk",[2] which is the risk of monetary loss a firm may be exposed to if the counterparty to an over-the-counter securities trade encounters difficulty meeting its obligations under the terms of the transaction.
This term, over time, has become more generally applied to companies offering or requiring retrocession and other forms of reinsurance.