For Herstatt Risk we have terms and definitions in 2 topics. The topics are Derivatives and Finance.

Herstatt Risk (Derivatives)

Definition: The risk to Counterparty A in the settlement of a foreign currency transaction with Counterparty B, that A would deliver its payment to B, but B might not pay, as agreed. If A and B deliver their payments in different time zones, then Herstatt risk occurs regularly. However, in 1994 a report indicated that Herstatt risk lasts more than one day in a significant portion of transactions. The eponymous Bankhaus Herstatt defaulted on a number of currency transactions when it failed in 1974.
Example: Bank A might agree to deliver DEM in Frankfurt at 3 p.m., in exchange for Bank B’s delivery of USD in New York at 3 p.m. on the same day. Although the times appear the same, the New York delivery comes later, because of the difference in time zones.
Comment: The potential for Herstatt risk has increased enormously, over the past decades, as daily currency transactions increased from about $10 billion in 1973 and about $1.25 billion in 1995. Actual defaults have been few, but when Barings collapsed, it failed to deposit $47.8 million worth of pesetas in a Deutsche Bank branch in Spain. Efforts to avoid the problem include bilateral "netting" arrangements, extended hours for the FedWire system, and clearing houses.
References: "Ghostbusters," The Economist, 3/16/96. .

Herstatt Risk (Finance)

The risk of loss in foreign exchange trading that one party will deliver foreign exchange but the counterparty financial institution will fail to complete its end of the contract. This is also referred to as settlement risk.

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