Credit risk stems from non-repayment or delays in repayment of either principal or interest on FI assets.

Question

BlackTom AI · Accepted Answer

The statement to evaluate is: 'Credit risk stems from non-repayment or delays in repayment of either principal or interest on FI assets.'
Option 1: TRUE. This aligns with the standard definition of credit risk in finance: the risk that a borrower will default on scheduled payments of principal or interest, or fail to repay the full amount owed, leading to potential losses for the lender. The risk can arise from delays or outright non-payment and affects fixed-income (FI) assets such as bonds, loans, or other debt instruments. 
Option 2: FALSE. This would be incorrect because it mischaracterizes credit risk as something other than the risk of default or delayed payments. While there are other types of risk in finance (e.g., market risk, liquidity risk, interest rate risk), credit risk specifically concerns failure or delay in fulfilling debt obligations, not unrelated sources of risk. The idea that credit risk would not involve principal or interest repayment contradicts the core definition used in credit analysis and risk management. 
In sum, the core concept of credit risk directly ties to the possibility of missing or delaying payments on debt instruments, which makes the statement true, while the alternative would misstate the scope of what constitutes credit risk.

BU.232.715.81.SP25 HW2

Credit risk stems from non-repayment or delays in repayment of either principal or interest on FI assets.

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