Counterparty risk in financial transactions can vary depending on the type of transaction and the parties involved. It is not just about lending risk but also includes factors like valuation, credit exposure, default probability, and recovery in case of default. Even centrally-cleared derivatives can pose significant counterparty risk due to large notional positions. Settlement risk is more relevant for short-term transactions. To manage counterparty risk effectively, it is crucial to understand these components and their impact on the overall risk level.