FP Article 15.3
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Investment Risk -
Credit Risk
by Rajen Devadason
Remember that credit is money.
Benjamin Franklin
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Credit risk is the type of risk you
accept each time you lend money to
some person, company, bank or
government!
You lend money to
a company or a government when you
buy its bonds.
You lend money to
a bank when you deposit your money
in it.
Credit risk is
therefore the other side of the coin
of borrowing risk.
Take note... |
It's useful for you bear in mind that credit
risk is essentially the finite risk almost
every creditor takes on - when lending money -
that the debtor will not repay.
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This is an article explaining credit
risk. I hope you enjoy
reading it. But if it isn't what
you're looking for, you're welcome
to search for something that better meets
your needs. Thank you for allowing
me to serve you.
Rajen Devadason |
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Frankly, pretty much the only investment asset
that's accepted globally as being risk-free,
meaning it is utterly devoid of any credit risk,
is the US Treasury bill commonly dubbed the US
T-bill.
These are extremely short-term bonds that are
auctioned off by the US Department of the
Treasury every Monday. They typically carry
tenures of 3-6 months.
Because of the short tenure of
T-bills, they are also deemed to be completely
devoid of interest rate risk.
Every other creditor is
considered to have some finite amount of credit
risk associated with it or him or her!
Money lenders such as loan sharks
and bankers, in particular, are constantly
subject to credit risk. Also, if you were to buy
a corporate junk bond issued by a company of
less than sterling financial standing, simply
because it offers a high coupon (or annual
interest) rate, you might find yourself
suffering a loss.
If you'd like to continue to learn more about
other types of investment risk, here's
additional information for you...
15 Types of Investment Risk
(OR, to sign up for a
FREE
16-lesson eCourse on Investment Risk, please
click here.)
1.
Borrowing Risk
2.
Company Risk
3.
Credit Risk
4.
Currency Risk
5.
Diversification Risk
6.
Industry Risk
7.
Inflation Risk
8.
Interest Rate Risk
9.
Liquidity Risk
10.
Lost Opportunity Risk
11.
Manager's Risk
12.
Market Risk
13.
Market Timing Risk
14.
Political Risk
15.
Prepayment Risk
© Rajen Devadason
