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A counterparty risk, also known as a default risk, is a risk that a counterparty will not pay what it is obligated to do on a bond, credit derivative, trade credit insurance or payment protection insurance contract, or other trade or transaction when it is supposed to, Financial institutions may hedge or take out credit insurance of some sort with a counterparty, which may find themselves unable to pay when required to do so, either due to temporary liquidity issues or longer term systemic reasons
It is an off balance sheet items. It is such kind kind of obligation on which exposure has been given to third party and obliged to pay whenever it is demanded. as like Bank Guarantee issued by Bank to third party on behalf of its client.
Country party risk means obliger risk and the obliger means the party on which exposure has been taken. Hence, country party risk means that the obliger will not pay as per agreed terms.
The answer is in the question itself.
