Define Credit Risk.

Define Credit Risk.

• A. When an individual or business defaults on their financial responsibilities
• B. The risk of currency fluctuations
• C. The risk of cyberattacks
• D. The risk of supplier delays

Answer: (A)

Credit risk is the possibility that a borrower will not repay what they owe, whether they miss payments or default entirely. This is the core idea because it directly describes the likelihood and impact of someone failing to meet their financial obligations, which is what lenders and platforms worry about when extending credit or processing credit terms. The option that says a person or business defaults on their financial responsibilities matches this concept precisely, as default is the outcome credit risk is concerned with. The other risks described aren’t about the ability or willingness to repay a debt. Currency fluctuations relate to foreign exchange risk, cyberattacks to security risk, and supplier delays to operational or supply-chain risk. Each of these can affect a business in different ways, but they don’t define the risk that a borrower won’t pay back what they owe.

Credit risk is the possibility that a borrower will not repay what they owe, whether they miss payments or default entirely. This is the core idea because it directly describes the likelihood and impact of someone failing to meet their financial obligations, which is what lenders and platforms worry about when extending credit or processing credit terms. The option that says a person or business defaults on their financial responsibilities matches this concept precisely, as default is the outcome credit risk is concerned with.

The other risks described aren’t about the ability or willingness to repay a debt. Currency fluctuations relate to foreign exchange risk, cyberattacks to security risk, and supplier delays to operational or supply-chain risk. Each of these can affect a business in different ways, but they don’t define the risk that a borrower won’t pay back what they owe.