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      Question

      An insurance company invests a large portion of its

      funds into corporate bonds rated BBB. After a sudden downgrade to junk status, the insurer faces loss of portfolio value. What type of risk is this?
      A Operational Risk Correct Answer Incorrect Answer
      B Credit Risk Correct Answer Incorrect Answer
      C Liquidity Risk Correct Answer Incorrect Answer
      D Reputational Risk Correct Answer Incorrect Answer
      E Strategic Risk Correct Answer Incorrect Answer

      Solution

      Downgrading of bond rating indicates credit/default risk.

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