What is a credit risk?

Credit risk is the amount of the potential for failure that owns a given debt investment or an extension of the loan. The creditor or investor in different types of bonds carries a certain degree of credit risk in any transaction. Before completing any type of lending or investment transaction, the evaluation of the risk -related rate is necessary.

In the case of lending money is an entity that provides a loan, credit risk. For this reason, the creditor will want to know the relevant information on the debtor's ability to repay the loan amount, including all financial fees and related fees. If the creditor is unable to determine that the debtor will be able to repay the loan, the debtor may be considered a bad credit risk and be rejected.

When buying bond problems, the buyer who takes over the level of credit risk. Bonds generally bear the obligation by the issuer of bonds to provide the buyer complete repayment of Purchase the price of the bond at some future point. WithinThe buyer also expects a type of dividend or interest payments in exchange for the purchase of a bond. If the bond issuer is unlikely to be able to repay the principal or provide interest payments as stated in the bond, the issuer is considered to be a poor credit risk.

almost any type of transaction that includes an extension of the loan in a certain form brings the degree of credit risk. In many cases, the level of risk is very low and is therefore considered acceptable. At the same time, it is important to explore all relevant factors than to take any level of credit risk. If you do not do so, this may lead to a loss of a creditor or a bond investor who can be significant.