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Questions and Answers
Which type of organizations typically have significant credit exposure?
Which type of organizations typically have significant credit exposure?
- Non-profit organizations
- Small businesses
- Government agencies
- Financial institutions (correct)
What is credit risk?
What is credit risk?
- The likelihood of a loss arising from default or failure of another organization (correct)
- The probability of a business going bankrupt
- The possibility of a company making a late payment
- The potential for a company to overextend its credit
What are the main activities that conventional credit risk arises through?
What are the main activities that conventional credit risk arises through?
- Lending, investing, and credit granting (correct)
- Lending and borrowing
- Investing and trading
- Credit granting and borrowing
Who is credit risk traditionally associated with?
Who is credit risk traditionally associated with?
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Besides lending, what other business entities should be concerned about credit risk?
Besides lending, what other business entities should be concerned about credit risk?
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Study Notes
Credit Risk Overview
- Organizations with significant credit exposure include banks, credit unions, and other financial institutions that provide loans and credits.
Definition of Credit Risk
- Credit risk is the risk of loss due to a borrower's failure to meet their debt obligations.
Sources of Conventional Credit Risk
- Conventional credit risk arises through lending activities, such as mortgage lending, consumer lending, and commercial lending.
Traditional Association of Credit Risk
- Credit risk is traditionally associated with banks and other financial institutions.
Other Entities Concerned about Credit Risk
- Besides lending institutions, other business entities that should be concerned about credit risk include suppliers, wholesalers, and retailers that extend credit to customers.
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