What's a potential consequence of failing to address counterparty risk?

Failing to address counterparty risk can lead to significant financial loss from defaults, which is why this option is the correct answer. Counterparty risk refers to the risk that the other party in a financial transaction may not fulfill their obligations as agreed. If a counterparty defaults, the entity that is exposed to this risk can suffer considerable financial damage, as it may not receive payments for contracts, securities, or loans.

When counterparty risk is not properly managed, it may lead to a cascade of negative outcomes such as liquidity shortages, loss of capital, and damage to reputations, which could further impact business operations. This highlights the importance of assessing and mitigating counterparty risk to safeguard financial health and stability.

The other options do not directly relate to the consequences of failing to manage counterparty risk. Increased market share and higher credit ratings typically reflect successful business operations and solid risk management. Lower employee turnover is more related to human resource management and organizational culture rather than the specifics of counterparty interactions. Hence, these choices do not align with the financial implications of neglecting counterparty risk.