bodhisattva

it is ok
limiting the total exposure to a given counterparty is primary method
it is stated in the book , I think the reason is low cost and diversification

Darien

When your entire exposure is with a single party and if that party's credit quality (ability and willingness to pay) deteriorate then it will lead to default and your realisation will be negligible. However, on the contrary, if the exposure is spread among various individual and distinct parties, then it is very less likely that all of them will default simultaneously.


Viks