Answer: Downgrade Risk

## Explanation **Downgrade risk** is an example of credit risk. It refers to the potential for a company's credit rating to be lowered by credit rating agencies, such as Standard & Poor's, Moody's, and Fitch Ratings. Credit ratings are an assessment of a company's creditworthiness and its ability to meet financial obligations, such as debt payments. A downgrade indicates that the credit rating agency perceives an increased risk of default or financial distress for the company. ### Why other options are incorrect: - **A. Interest Rate Risk**: Arises from fluctuations in the market interest rates, and it may cause a decline in the value of interest-rate-sensitive portfolios. - **B. Equity Price Risk**: Is the risk associated with volatility in stock prices. It doesn't result in an increase in the cost of debt. - **C. Bankruptcy Risk**: Is another example of credit risk. It is associated with a borrower's inability to clear his debt leading to a takeover of his collateralized assets. When a bank's credit rating is downgraded, it typically faces higher borrowing costs as lenders demand higher interest rates to compensate for the perceived increased risk of default.

Author: Tanishq Prabhu