Question
Question 23 The risk of default on the company's debt if it fails to make required payments on time is called __ credit risk operational risk foreign currency risk 3 pts
Answer
4.4
(315 Votes)
Jerome
Professional · Tutor for 6 years
Answer
Credit risk
Explanation
## Step 1: Understand the question to identify the type of risk.The risk described in the question is revelatory of a situation where the debtor or company fails to make the necessary payments, particularly in a stipulated timeframe. This concerns a type of risk that is associated with a debtor or borrower's capability to repay a loan or fulfill debt obligations.## Step 2: Identifying the correct terminology for that type of risk. Among the options provided (credit risk, operational risk, and foreign currency risk), the clear fit for the scenario described in the question is 'credit risk'. ### The formula or principle we are using here is the defining principle of 'Credit risk' that states:### 'Credit risk is the risk of loss due to a debtor's non-payment of a loan or other line of credit.' Credit risk captures any default on the company's financial obligations that they are due to repay or risks associated with repayment of the debt. It includes the principal loan amount as well as the interest due on that amount.Operational risk concerns the day-to-day operations that can result in the failure of the company. Various factors like system failures, management failures, or legal risks could be a part of operational risk. Foreign currency risk points towards the fluctuation of the forex market, and this risk occurs when the value of the domestic currency become volatile compared to foreign assets/currencies.