Which of the following would be an example of credit risk?
A)A bank manager embezzles $1,000,000 from the bank.
B)A bank that loses $500,000 from trading in foreign currencies.
C)A $1,000,000 loan given to a business,on which no interest or principal has been collected in 2 years.
D)A bank manager predicts interest rates will rise.However,interest rates fall causing the bank's net income to fall by $250,000.
E)All of the options are examples of credit risk.

Question

Quizplus · Accepted Answer

Credit risk is the risk that a borrower will default or fail to meet their obligations. Option C describes a loan on which no interest or principal has been collected in 2 years, indicating that the borrower may be having trouble making payments and thus represents credit risk. Options A and B describe operational risk and market risk respectively. Option D relates to interest rate risk. Therefore, option C is the best choice for credit risk.

Which of the Following Would Be an Example of Credit