Counterparty risk is the risk borne by each party in any transaction if the counterparty fails to fulfil his/its obligation son account of failure to pay the amount or to deliver securities. Counterparty risk is as crucial for the regulators as it is for the institutions exposed to it, as a systemically important large financial institution will be a counterparty to many others. Therefore the failure of one institution can cause turmoil in the financial markets all across.