Credit risk

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Credit risk is an investor's risk of loss arising from a borrower who does not make payments as promised. Such an event is called a default. Investor losses include lost principal and interest, decreased cash flow, and increased collection costs, which arise in a number of circumstances:


  • A consumer does not make a payment due on a mortgage loan, credit card, line of credit, or other loan
  • An Import business does not make a payment due on a mortgage, credit card, line of credit, or other loan
  • A business or consumer does not pay a trade invoice when due
  • A business does not pay an employee's earned wages when due
  • A business or government bond issuer does not make a payment on a coupon or principal payment when due
  • An insolvent insurance company does not pay a policy obligation
  • An insolvent bank won't return funds to a depositor
  • A government grants bankruptcy protection to an insolvent consumer or business


References:

1.http://en.wikipedia.org/wiki/Credit_risk


External Links:

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