Question of the Week – What is Credit Risk?

The risk series has landed on credit risk this week.

Credit Risk is found in debt instruments like bonds. It is the risk that the government or company that has issued the bonds you have purchased will run into financial trouble. The government’s or company’s financial troubles may result in their inability to pay the interest or the principal when the payments are due. Before purchasing any bonds always check the credit rating of the government or company issuing the bond. This will tell you how much credit risk you are taking on and if there is a greater chance that the issuer of the bond could default on making any payments to you.