CFA Level I · CFA Level I Exam · Credit Risk
A credit analyst reviews a borrower's history of honoring obligations, the quality and track record of its management team, and its approach to financial reporting. These factors are most likely part of which of the four Cs?
These factors best describe character. Character assesses management's quality, track record, strategy, governance and reporting integrity. Capacity focuses on cash flow ability to repay, and covenants are contractual terms in the debt agreement, so neither matches the factors described.
- ACovenants
- BCharacterCorrect
- CCapacity
Explanation
Character covers management quality, strategy, track record, and governance and reporting practices. Capacity concerns the ability to generate cash to repay debt, and covenants are contractual restrictions in the debt agreement. The factors described are qualitative assessments of management and integrity, which fit character.
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