How do treasurers manage counterparty credit risk on a derivatives portfolio, and what is CVA?

Derivatives create bilateral credit exposure: if a counterparty defaults when the trade is in-the-money to you, you can lose the replacement value. Treasurers manage it with counterparty credit limits (often by rating), diversification across banks, ISDA Master Agreements with close-out netting, and CSAs requiring daily collateral/variation margin to keep exposure near zero. Increasingly, central clearing of standardized swaps moves the exposure to a CCP. CVA (Credit Valuation Adjustment) is the market value of that counterparty default risk — the amount by which a derivative's value is reduced to reflect the chance the counterparty fails; banks price and capitalize it, and corporates see it as a pricing/credit-charge component. Monitoring net exposure after collateral, not gross notional, is the key discipline.