7-13 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.

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This statement describes the concept of credit risk, which refers to the likelihood of a borrower defaulting on their debt. In this case, the upside return is limited or fixed, which means the potential gain is limited, while the downside loss is large, though it has a small probability of occurring. This represents a higher credit risk for the FI, as they have a greater likelihood of losing money on this asset.

7-13 the Relationship of a Limited or Fixed Upside Return