Credit Risk

Credit Risk refers to the risk of default on a debt that is owed by a borrower. It is the risk that a borrower will be unable or unwilling to repay the borrowed funds or meet their financial obligations. This type of risk is commonly associated with lending money, but it can also arise from other financial transactions, such as the purchase of bonds or other debt securities.

Credit risk is influenced by a variety of factors, including the borrower's credit history, financial strength, and overall ability to repay the debt. Lenders and investors typically use credit scores, financial statements, and other financial metrics to assess the credit risk associated with a particular borrower or investment.

Managing credit risk is an important part of managing financial risk, as the failure of a borrower to repay debt can have significant financial consequences for the lender or investor. Lenders and investors use a variety of techniques to manage credit risk, including diversification of investments, credit analysis, and the use of credit derivatives such as credit default swaps.