The risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss is referred to as:
A) market risk.
B) credit risk.
C) liquidity risk.
D) interest rate risk.

Question

Quizplus · Accepted Answer

Credit risk is the risk that a counterparty will fail to meet its obligation to pay under a financial contract, causing the other party to incur financial losses. Market risk refers to the risk of losses due to changes in market prices, liquidity risk is the risk of being unable to liquidate an investment, and interest rate risk refers to the risk of losses due to changes in interest rates.

The Risk That One Party to a Financial Instrument Will