The risk of making a loan is
A) called ʺdefault riskʺ when taxes are not paid.
B) earning profits that are too high and cause higher taxes.
C) the risk that the borrower does not pay.
D) the risk that lender does not pay.

Question

Quizplus · Accepted Answer

The term for the risk of the borrower not paying back a loan is default risk. Therefore, option C is the correct answer. Option A is incorrect because default risk is not related to taxes. Option B is incorrect because earning high profits does not increase the risk of making a loan, but it may result in higher taxes. Option D is also incorrect because the lender is not the one making payments in a loan agreement.

The Risk of Making a Loan Is