It is named Herstatt risk after the German bank that did just that in 1974.

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There are also those in the wings with another product to flog: a foreign-exchange derivative which, because it is a bet settled for cash, also reduces Herstatt risk.

ECONOMIST: Foreign exchange

On the other hand, when Germany's Herstatt Bank failed to meet its international payment obligations in the mid-1970s, that event caused a serious globalized payment-system crisis -- even though Herstatt itself would not have been on anyone's list of major financial institutions at the time.

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