Credit Risk Is an Issue for Financial Instruments and Must

question 9

Multiple Choice

Credit risk is an issue for financial instruments and must be disclosed because:

• A) the company may default on its loan
• B) the company may not have enough cash flow to pay suppliers
• C) the other parties to financial instruments may not perform their obligations
• D) the company may not perform their obligations

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Definitions:

Agent

A person authorized to act on behalf of another and subject to the other’s control in dealing with third parties.

Depository Bank

A financial institution where deposits are made, held, and managed; also facilitates financial transactions for clients.

Settlement

An agreement reached between parties in a dispute, where usually one party agrees to provide compensation to the other, ending the dispute outside of court.