How can a company identify and manage counterparty risk effectively?

(a) A company can identify and manage counterparty risk effectively by recognizing potential warning signs and implementing risk mitigation techniques. The various hints that may provide counter party risk are as follows: (a) Failure to obtain necessary resources to complete the project or transaction undertaken. (b) Any regulatory restrictions from the Government. (c) Hostile action of foreign government. (d) Let down by third party. (e) Have become insolvent. The various techniques to manage this type of risk are as follows: (1) Carrying out Due Diligence before dealing with any third party. (2) Do not over commit to a single entity or group or connected entities. (3) Know your exposure limits. (4) Review the limits and procedure for credit approval regularly. (5) Rapid action in the event of any likelihood of defaults. (6) Use of performance guarantee, insurance or other instruments.