The relationship of a limited or fixed upside return with a high probability and the potential large downside loss with a small probability is an example of an asset's credit risk to an FI.

Question

Quizplus · Accepted Answer

This is an accurate description of credit risk, which refers to the risk that a borrower or issuer of debt will not be able to make payments on their obligations. In this example, the FI may face the risk of a limited return on their investment or loan, but also the potential for a large loss if the borrower defaults.

The Relationship of a Limited or Fixed Upside Return with a High