The potential failure of a manufacturer to honor a warranty might be called ____, whereas the potential

The potential failure of a manufacturer to honor a warranty might be called ____, whereas the potential

failure of a borrower to fulfill its payment requirements, which include both the repayment of the amount borrowed, the principal and the contractual interest payments, would be called ___.
A . Credit risk; market risk
B . Market risk; credit risk
C . Credit risk; performance risk
D . Performance risk; credit risk

View Answer

Answer: D

Explanation:

The potential failure of a manufacturer to honor a warranty is a type of performance risk because it relates to the manufacturer’s performance under the terms of the warranty contract. Conversely, the potential failure of a borrower to fulfill its payment requirements, including both the repayment of the amount borrowed (principal) and the contractual interest payments, is known as credit risk. Credit risk specifically deals with the likelihood of a borrower defaulting on their debt obligations.