CFA Level I · CFA Level I Exam · Introduction to Risk Management
A bank's treasurer notes that a corporate borrower may fail to make scheduled interest payments on a loan. This exposure is best described as:
This is credit risk, because it is the chance that a borrower or counterparty fails to pay interest or principal as promised. Liquidity risk relates to trading costs and the ability to transact, and operational risk relates to failed internal processes, people or systems.
- ACredit riskCorrect
- BLiquidity risk
- COperational risk
Explanation
Credit risk is the risk that a counterparty fails to make promised payments in full and on time. Liquidity risk concerns the ability to transact at a reasonable price, and operational risk concerns failures of people, systems or processes.
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