Question
Download Solution PDFWhich of the following forms may not result in credit risk?
(A) Principle and/or interest amount may not be repaid in the case of direct lending.
(B) In case of guarantees or letter of credit, fund may not be forth coming from the constituents upon crystallisation of the liability.
(C) Funds/Securities settlement may not be effected, in case of securities trading business.
(D) Provide information for determining adequacy of loan loss provision.
Choose the correct answer from the options given below:
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFThe correct answer is D only
Provide information for determining adequacy of loan loss provision will not result in credit risk.
Key Points Credit Risk:
- The risk of losing money due to a borrower's failure to repay a loan is known as credit risk.
- It refers to a lender's risk of having its cash flows disrupted if a borrower fails to pay principal or interest on a loan.
- When a borrower does not have enough cash flow to pay a creditor or does not have enough assets to sell to make a payment, credit risk is deemed to be higher.
- The lender is more likely to demand compensation in the form of a higher interest rate if the risk of non-payment is greater.
Last updated on Jul 7, 2025
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