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Definition of Credit Risk
Financial and moral risk that an obligation will not be paid and a loss will result.
The risk that an issuer of debt securities or a borrower may default on his obligations, or that the
A bond selling at or close to par, that is, a bond with a coupon close to the yields currently
Also referred to as credit risk (as gauged by commercial rating companies), the risk that an
Provides additional financial security should an insured person be dismembered or lose the use of a limb as the result of an accident.
Refers to the reduction of debt by regular payments of interest and principal in order to pay off a loan by maturity.
The amount of total risk that can be eliminated by diversification by
The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.
The uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for
The person or party designated to receive proceeds entitled by a benefit. Payment of a benefit is triggered by an event. In the case of credit insurance, the beneficiary will always be the creditor.
The requirement that a claim holder voting against a plan of reorganization
risk of a firm measured from the standpoint of an investor who holds a highly diversified portfolio.
A consumer who borrows money from a lender.
The risk that the cash flow of an issuer will be impaired because of adverse economic
The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.
An agreement between a creditor and a borrower, where the creditor has loaned an amount to the borrower for business purposes.
The risk that a foreign debtor will be unable to pay its debts because of business events,
Related: Unsystematic risk
See asset-specific risk
Comparative credit analysis
A method of analysis in which a firm is compared to others that have a desired
The risk that a project will not be brought into operation successfully.
credit granted by a firm to consumers for the purchase of goods or services. Also called
Consumer Credit Protection Act
A federal Act specifying the proportion of
The risk that the other party to an agreement will default. In an options contract, the risk
Country financial risk
The ability of the national economy to generate enough foreign exchange to meet
Country risk General
Level of political and economic uncertainty in a country affecting the value of loans or
Buying or selling goods or services now with the intention of payment following at some time in
One side of a journal entry, usually depicted as the right side.
A rating of a company's credit (ability to payback debt), usually by a third party credit agency.
On your bank statement, 'credit' represents funds that you have deposited into your account. The opposite of a credit is a debit.
The process of analyzing information on companies and bond issues in order to estimate the
Procedure to determine the likelihood a customer will pay its bills.
An organization that provides financial institutions with credit information concerning existing or potential customers who are looking to obtain credit services.
A revolving source of credit with a pre-established limit. You have to pay interest on a credit card if you have an outstanding balance.
A decline in the ability or willingness of banks to lend.
Purchase of the financial guarantee of a large insurance company to raise funds.
A loan receivable that has proven uncollectible and is written off.
A record of the funds which have been credited to your account.
The length of time for which the customer is granted credit.
Standards set to determine the amount and nature of credit to extend to customers.
Restriction of loans by lenders so that not all borrowers willing to pay the current interest rate are able to obtain loans.
A statistical technique wherein several financial characteristics are combined to form a single
Conditions under which credit is extended by a lender to a borrower.
credit unions are community based financial co-operatives and most offer a full range of services. All are owned and controlled by members who are also shareholders. credit unions are regulated provincially and insured by a stabilization fund, deposit insurance or guarantee corporation.
The interest rate offered on an investment type insurance policy.
Lender of money.
Person or business that is owed money.
Creditor (Credit Insurance)
A lender or lending institution that offers financing and loans to a borrower, for the purpose of acquiring a commodity.
Creditor Proof Protection
The creditor proof status of such things as life insurance, non-registered life insurance investments, life insurance RRSPs and life insurance RRIFs make these attractive products for high net worth individuals, professionals and business owners who may have creditor concerns. Under most circumstances the creditor proof rules of the different provincial insurance acts take priority over the federal bankruptcy rules.
Purchases of goods or services from suppliers on credit to whom the debt is not yet paid. Or a
Critical Illness Insurance (Credit Insurance)
Coverage that provides a lump-sum payment should you become seriously ill with a specified illness. The payment is made to your creditors to pay off your debt owing.
Refers to the volatility of returns on international investments caused by events associated
Related: Exchange rate risk
Currency risk sharing
An agreement by the parties to a transaction to share the currency risk associated with
Debt (Credit Insurance)
Money, goods or services that someone is obligated to pay someone else in accordance with an expressed or implied agreement. Debt may or may not be secured.
Demand line of credit
A bank line of credit that enables a customer to borrow on a daily or on-demand basis.
Disability Insurance (Credit Insurance)
Group Insurance designed to cover monthly obligations due to a borrower being unable to work due to sickness or injury.
Related: unsystematic risk.
In project financing, the risk that the project's output will not be salable at a price that will
Equilibrium market price of risk
The slope of the capital market line (CML). Since the CML represents the
Intermediate-term loans of Eurocurrencies made by banking syndicates to corporate and
The risk that the ability of an issuer to make interest and principal payments will change because
Revolving credit without maturity.
Exchange rate risk
Also called currency risk, the risk of an investment's value changing because of currency
The variability of a firm's value that results from unexpected exchange rate changes or the
Export Credit Insurance
The granting of insurance to cover the commercial and political risks of selling in foreign markets.
A type of mortgage pipeline risk that is generally created when the terms of the loan to be
Federal credit agencies
Agencies of the federal government set up to supply credit to various classes of
The risk that the cash flow of an issuer will not be adequate to meet its financial obligations.
risk to shareholders resulting from the use of debt.
See:diversifiable risk or unsystematic risk.
Five Cs of credit
Five characteristics that are used to form a judgement about a customer's creditworthiness:
Flat price risk
Taking a position either long or short that does not involve spreading.
Force majeure risk
The risk that there will be an interruption of operations for a prolonged period after a
Foreign exchange risk
The risk that a long or short position in a foreign currency might have to be closed out
Foreign tax credit
Home country credit against domestic income tax for foreign taxes paid on foreign
Formalized Line of Credit
A contractual commitment to make loans to a particular borrower up to a specified maximum during a specified period, usually one year.
Full Credit Period
The period of trade credit given by a supplier to its customer.
Full faith-and-credit obligations
The security pledges for larger municipal bond issuers, such as states and
Related: interest rate risk
risk that arises when an issuer has policies concentrated within certain geographic areas,
The risk of loss in foreign exchange trading that one party will deliver foreign exchange but the counterparty financial institution will fail to deliver its end of the contract. It is also referred to as settlement risk.
High-Risk Small Business
Firm viewed as being particularly subject to risk from an investors perspective.
Unsystematic risk or risk that is uncorrelated to the overall market risk. In other words,
Also called purchasing-power risk, the risk that changes in the real return the investor will
The risk that a firm will be unable to satisfy its debts. Also known as bankruptcy risk.
Insurance Policy (Credit Insurance)
A policy under which the insurance company promises to pay a benefit of the person who is insured.
Interest rate risk
The risk that a security's value changes due to a change in interest rates. For example, a
Interest Rate Risk
Possibility that interest rates will rise during the term of a loan thereby increasing the annual cost of borrowing.
Investment tax credit
Proportion of new capital investment that can be used to reduce a company's tax bill
Investment Tax Credit
A reduction in taxes offered to firms to induce them to increase investment spending.
Job Loss Insurance (Credit Insurance)
Coverage that can pay down your debt should you become involuntarily unemployed. The payment is made to your creditors to reduce your debt owing.
judgmental method (of risk adjustment)
an informal method of adjusting for risk that allows the decision maker
Lease (Credit Insurance)
Contract granting use of real estate, equipment or other fixed assets for a specified period of time in exchange for payment. The owner or a leased property is the lessor and the user the lessee.
Lender (Credit Insurance)
Individual or firm that extends money to a borrower with the expectation of being repaid, usually with interest. Lenders create debt in the form of loans. Lenders include financial institutions, leasing companies government lending agencies and automobile dealers.
Letter of credit (L/C)
A form of guarantee of payment issued by a bank used to guarantee the payment of
Letters of Credit
A letter of credit is a guarantee of payment by a bank (issuing institution)to a third party for a specific amount of money, if certain conditions are met.
Life Insurance (Credit Insurance)
Group Term life insurance that pays or reduces the balance due on a loan if the borrower dies before the loan is repaid.
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