Definition of Credit Risk
What is Credit Risk
Credit risk is the risk or probability that a company or a government, who issued the debt security or bond, will run into financial difficulties and won’t be able to pay the interest or repay the principal at maturity.
An investor can evaluate credit risk by looking at the credit rating of the security. As an example, long-term US government bonds have a credit rating of AAA, which indicates the highest of creditworthiness and the lowest possible credit risk.
Glossary of Terms and Phrases
A financial dictionary or glossary is an essential tool to better understand the meaning of a specialized term or phrase. It would obviously make life much easier if everyone spoke the same language and used the same financial terms and phrases but that is not realistic.
We learn new languages to communicate with each other, transact business globally and to appreciate other cultures. Global finance is a specialized language that if understood and mastered, it will provide benefits that help to decrease risk and improve investment returns. Financial literacy is the foundation of developing good investment strategies and sound decision making.