Explanation:
Credit risk refers to a loss suffered by a party whereby the counterparty fails to meet its financial obligations to the party under the contract. There are four subtypes of credit risk: (1) default risk, (2) bankruptcy risk, (3) downgrade risk, and (4) settlement risk.
(Book 1, Module 1.2, LO 1.e)
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Question 51
A risk manager at Firm X has been asked by his company's chief risk officer (CRO) to write a report describing how the eight main classes of risk apply to Bank Y, a key counterparty of the firm. In evaluating the riskiness of Bank Y, which key class of risk should he most likely associate with the bank's bankruptcy and settlement risk?
A
Market risk.
B
Operational risk.
C
Business risk.
D
Credit risk.
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