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      Question

      Which of the following describes credit

      risk?
      A Current value of collateral security deteriorates against interest of the bank Correct Answer Incorrect Answer
      B either an inability or an unwillingness of the borrower to perform as contracted Correct Answer Incorrect Answer
      C insurance company rejects certain claims Correct Answer Incorrect Answer
      D A and B Correct Answer Incorrect Answer
      E all of the above Correct Answer Incorrect Answer

      Solution

      Credit Risk is the default risk or non-recovery of loan / failure on part of borrower to meet its obligations as per the loan agreement, either due to inability or unwillingness to repay on part of borrower. When the bank is unable to recover from the collateral provided, it also adds to the credit risk which is known as the recovery risk in credit risk.

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