CS Professional · Banking and Insurance - Laws and Practice · Risk Management in Banks and Basel Accords
Shree Bharat Bank identifies that a large borrower may fail to repay its loan on time, causing a loss to the bank. Which category of risk does this primarily represent?
This is credit risk, because the loss arises from a borrower failing to repay as agreed. Market risk comes from price or rate movements, operational risk from failed processes, and liquidity risk from inability to meet cash needs.
- ACredit riskCorrect
- BMarket risk
- COperational risk
- DLiquidity risk
Explanation
Credit risk is the risk of loss from a borrower or counterparty failing to meet its obligations as agreed. Market risk arises from movements in interest rates, exchange rates or prices, which is not the case here. Operational risk arises from failed processes, people or systems.
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