Meant to reduce transactional risk, basket deductibles are paid for losses accrued due to various types of risk.
Specifying the instances in which the seller in a transaction can be responsible for various claims, a basket deductible will limit the obligations of an indemnifying party so that they are not liable for breaches or mistakes in a transaction until a specified amount of losses are exceeded.
If a company undergoes an acquisition or merger, the basket deductible will typically be found in the purchase agreement. The presence of a basket deductible will make easier the merger or acquisition process by enumerating the various risks involved, and offering a certain level of insurance to the seller.
Related or Semi-related Video
Finance: What is Counterparty Risk?9 Views
Finance a la shmoop what is counterparty risk?
alright here's you the party and here's the guy you're contracting with to sell [Woman and man stood side by side]
18 tons of bricks or buy a line of credit for your flower shop or sell a
futures contract with the right to buy oil at 80 bucks a barrel for the next [Person signs contract]
two years so you're the party and he's the counterparty and the yin and yang of
the party and here's the risk yeah well the counterparty risk is just
that the person you contracted with doesn't live up to their end of the
bargain you pay them good money you sign a good contract all lawyered up and [Stack of money and contract appears]
stuff and then they split like totally split disappeared sea men choose the
bottom of the ocean maybe they went to Bora Bora
maybe they got facial surgery in the Philippines you know they do that now [George Clooney in a surgical bed]
well when that happens you will probably feel like crying and you should its your
counterparty you can cry if you want to come on that was a good reference people [Man singing]
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