An investor holds short-term commercial paper issued by a manufacturing corporation. Shortly before maturity, the corporation experiences severe cash flow shortages due to an unexpected product recall, raising concerns over its capacity to make timely principal payments. Which type of risk is most directly demonstrated in this scenario?
- Credit risk, which involves the possibility that an issuer will default on its debt obligation to pay interest or principal.Cevap
- BInterest rate risk, which involves price fluctuations in fixed-income securities caused by shifts in benchmark market yields.
- CMarket risk, which reflects macroeconomic downturns that affect virtually all securities simultaneously.
- DReinvestment risk, which occurs when principal repaid at maturity must be placed into lower-yielding investments.
Cevap
Credit risk is the primary concern when an issuer faces operational or financial distress that jeopardizes its ability to honor principal and interest payments on outstanding debt securities.
Credit risk (or default risk) is a non-systematic risk representing the possibility that a borrower or issuer will fail to meet scheduled obligations to pay interest or principal on debt instruments such as commercial paper.
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Anahtar Kavram
Credit Risk and Non-Systematic Risk Identification