Credit risk

The risk of financial loss as a result of the inability or unwillingness of an entity to make payments as they become due. Many types of relationship involve credit risk, such as those where a company owes money to its suppliers (trade debt) or where a counterparty is required to make payments under a derivative contract (counterparty credit risk). But perhaps the most common type of credit risk is where a company, person or government has borrowed money from a lender. This 'borrowed money' credit risk is the kind that is most commonly transferred using a credit derivative.