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      Question

      Which of the following statements about credit risk is

      incorrect?
      A Risk of loss in a bond portfolio due to changes in interest rates is a form of credit risk Correct Answer Incorrect Answer
      B Credit risk arises from events like corporate bankruptcy Correct Answer Incorrect Answer
      C Credit risk is also referred to as Default risk Correct Answer Incorrect Answer
      D Risk of non-payment by a counterparty in a derivatives transaction is a form of credit risk Correct Answer Incorrect Answer
      E All are correct Correct Answer Incorrect Answer

      Solution

      β€’ Credit Risk (Default Risk): The possibility that a borrower, bond issuer, or counterparty fails to meet their contractual obligations (non-payment of principal or interest). Examples include corporate bankruptcy or derivative counterparty default. β€’ Statement A is incorrect because the risk of loss due to changes in interest rates is not credit risk; it is interest rate risk (a type of market risk). β€’ Statement B, C, and D are correct β†’ all describe valid forms of credit risk.

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