An Example of Default Risk Is

question 119

Multiple Choice

An example of default risk is

• A)a borrower refusing to make his car payments.
• B)a change in the interest rate such that a borrower pays off her mortgage loan early.
• C)a change in the exchange rate such that an FI's foreign assets lose value in dollar terms.
• D)an FI's inability to make payments without first selling long-term assets.

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Definitions:

Equity

The ownership interest in a company of its shareholders; it represents the amount of assets that would be returned to shareholders if all the company's debts were paid off.

Debt Ratio

A financial ratio that compares the amount of a company’s total debt to its total assets, indicating the leverage level.

Assets

Resources owned by a company or individual considered valuable and can be used to produce positive economic value.

Equity

The residual interest in the assets of a company after deducting liabilities, representing the ownership interest of shareholders.