2016-FRR Exam Dumps | Which one of the following four statements correctly defines credit risk?

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GARP.2016-FRR.v2024-09-09.q145
Question 111

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Question 111/145

Which one of the following four statements correctly defines credit risk?

A. Credit risk is the risk that complements market and liquidity risks.

B. Credit risk is a form of performance risk in contractual relationship.

C. Credit risk is the risk arising from execution of a company's strategy.

D. Credit risk is the risk that summarizes the exposures a company or firm assumes when it attempts to operate within a given field or industry.

Correct Answer: B

Credit risk refers to the risk that a borrower will default on any type of debt by failing to make required payments. It is typically a form of performance risk in a contractual relationship, where one party is at risk of loss due to another party's inability to fulfill financial obligations. This is distinguished from market risk (related to market prices), liquidity risk (related to the availability of funds), and other operational risks that companies might face.

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