Explanation:
Credit risk is the risk of financial loss resulting from a borrower's failure to repay a loan or meet contractual obligations. It is borne by the lender (in this case, Chazz Bank), not the borrower (Jason). Therefore, Jason does not bear credit risk; rather, he assumes a debt obligation. When Chazz Bank grants the $5,000 credit limit to Jason on January 21st, the bank establishes an exposure, thereby taking on credit risk. Because the text notes to define credit risk broadly to include exposure, the bank's risk (exposure) increased on January 21st when the commitment was made.
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24.1.1. Jason applies for a credit card on January 15th with Chazz Bank. Chazz bank grants him a credit card on January 21st and gives him a $5,000 spending limit. Jason starts using the credit card immediately. Jason also bought a washer and dryer worth $2,500 on January 25th. Jason receives his first credit card bill on January 31st, with a due date of February 15th. Please note that (per the reading) we define credit risk broadly here to include exposure.
Based on the above scenario, which of the following statements is TRUE?
A
Jason creates credit risk for himself on January 15th.
B
Jason's credit risk increased on January 21st.
C
Chazz Bank increased its credit risk on January 21st.
D
Chazz Bank did not increase its credit risk on January 25th.
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