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    Question

    Risks that could arise due to legal actions or

    uncertainty of interpretations of contracts & agreements is called
    A Legal Risk Correct Answer Incorrect Answer
    B Contract risk Correct Answer Incorrect Answer
    C Country Risk Correct Answer Incorrect Answer
    D Counter party risk Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    The legal risks primarily arise either due to lack of clarity of the documentation of the product or the act of the counterparty. Change in legal environment due to legislative changes and Court interpretations/proceedings also result in legal risk. Legal risk includes risk of non-enforceability of contract or in-correct documentation resulting in the increased probability of loss. Broadly, legal risks may result in (i)            claims against institution, (ii)           fines, penalties, punitive damages, (iii)          unenforceable contracts resulting from defective documentation, and (iv)         loss of institutional reputation

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