Investment
Credit Risk
Also known as: Default Risk, Counterparty Risk, Issuer Risk
The risk that a borrower or issuer may default on interest payments or principal repayment.
Detailed Explanation
Credit Risk is the possibility that a borrower, bond issuer, or deposit-taking institution may fail to meet their financial obligations. In the context of corporate FDs, it's the risk that the company may not repay the principal or interest as promised. Credit risk varies based on the issuer's financial health, business model, management quality, and economic conditions. It's assessed through credit ratings and reflected in higher interest rates for riskier issuers.