Nature of Credit Risk

Nature of Credit Risk- Credit risk is a risk of failure on a debt that may result from a borrower failing to make necessary payments. In the premier resort, the risk is that of the lender and covers disruption to cash flows, lost principal and interest, and increased collection costs. The loss may be complete or partial. In project finance, credit risk tends to be relatively high at project inception and to diminish over the life of the project. Hence, longer-maturity loans would be cheaper than shorter-term credits.

Ongoing management of credit risk associated with long-dated foreign exchange contracts can be a significant issue for many organizations. When WATC undertakes foreign exchange transactions for a client, the client’s exposure is to WATC – an AAA-rated, government-guaranteed entity. It is WATC, in its transaction with the financial markets, that assumes and manages the credit risk with market counterparties.

Forex Currency trading is quite a lucrative option to gain huge profits but there are risks involved too, which a trader needs to understand well before jumping into forex trading. While trading in forex, investors come across various types of risks in foreign exchange trading. The four main types of risks involved in foreign exchange trading are defined below.
1. Exchange Rate Risk
2. Interest Rate Risk
3. Credit Risk
4. Country Risk