DEFAULT RISK Meaning and
Definition
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Default risk refers to the probability that a borrower or issuer of debt will fail to meet its payment obligations, resulting in a default on loans or bonds. It is a measure of the creditworthiness or financial stability of an entity that has borrowed funds.
Default risk can apply to individuals, corporations, or governments, and it is usually assessed by credit rating agencies. These agencies evaluate the borrower's ability and willingness to repay its debt based on various factors such as financial health, historical performance, industry conditions, and economic outlook. The risk of default is typically classified into different levels, such as low, medium, or high, depending on the credit rating assigned.
A higher default risk implies a higher probability or likelihood of a borrower defaulting on its payment obligations. When a borrower defaults, it may result in significant losses for the lender or investor, as they may not receive the expected interest payments or principal amount. The risk of default is an essential consideration for lenders and investors, as it helps them assess the potential losses associated with a loan or investment.
Various measures and indicators, such as credit spreads, credit default swaps, and bond prices, are used to assess and monitor default risk in financial markets. Additionally, default risk plays a crucial role in pricing debt instruments, as issuers with higher default risk usually have to offer higher yields or interest rates to attract investors.
Common Misspellings for DEFAULT RISK
- sefault risk
- xefault risk
- cefault risk
- fefault risk
- refault risk
- eefault risk
- dwfault risk
- dsfault risk
- ddfault risk
- drfault risk
- d4fault risk
- d3fault risk
- dedault risk
- decault risk
- devault risk
- degault risk
- detault risk
- derault risk
- defzult risk
- defsult risk
Etymology of DEFAULT RISK
The word "default" originates from the Old French word "defaute", which means failure or lack. It further developed from the Latin word "defectus", meaning deficiency or failure. Meanwhile, the word "risk" comes from the Italian word "risco", which was borrowed from the Arabic word "rizq", meaning chance or opportunity. Therefore, the etymology of the phrase "default risk" combines these two terms, referring to the possibility or chance of failure or lack in meeting financial obligations or debt payments.
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