Question : ___________ is the risk associated with the borrower's inability to repay the loan.
Option 1: Credit risk
Option 2: Market risk
Option 3: Operational risk
Option 4: Liquidity risk
Correct Answer: Credit risk
Solution : The correct answer is (a) Credit risk.
Credit risk refers to the risk that a borrower will be unable to fulfill their financial obligations and repay a loan or debt. It is the risk that the borrower may default on their payments or fail to meet the agreed-upon terms of the loan. This risk arises from factors such as the borrower's financial condition, creditworthiness, ability to generate income, and overall economic conditions.
Banks and financial institutions assess credit risk before granting loans or extending credit to individuals, businesses, or other entities. They evaluate the borrower's credit history, income stability, collateral, and other relevant factors to determine the likelihood of repayment. Lenders may also use credit scoring models and credit ratings to assess and manage credit risk.
Question : ___________ is the risk associated with the loss of purchasing power due to inflation.
Option 1: Inflation risk
Option 2: Credit risk
Option 3: Market risk
Question : What is the term used to describe the risk that changes in exchange rates will impact the profitability of a company's international trade transactions?
Option 1: Operational risk
Option 4: foreign exchange risk
Question : What is the term used to describe the risk that changes in exchange rates will impact the ability of a borrower to repay a foreign currency-denominated debt?
Option 2: Interest rate risk
Option 3: Sovereign risk
Option 4: Currency risk
Question : What is the term used to describe the risk that changes in exchange rates will affect the value of future cash flows associated with an investment or business operation?
Option 1: Currency risk
Option 2: Liquidity risk
Option 4: Systemic risk
Question : What is the term used to describe the risk that changes in exchange rates will affect the value of an investment portfolio containing assets denominated in different currencies?
Option 3: Liquidity risk
Option 4: Market risk
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