Welcome to another insightful educational short from Quintedge, where we dive into the fundamental concept of Credit Risk. This video is tailored for finance professionals, students, and anyone looking to deepen their understanding of credit analysis and risk management. Credit risk is a critical component in the financial sector, influencing lending, investment decisions, and overall financial stability.

Credit risk refers to the possibility of loss resulting from a borrower's failure to repay a loan or meet contractual obligations. Traditionally, it is the risk that financial institutions face when borrowers default on their loan repayments. However, credit risk also applies to bonds, securities, and any financial instrument that entails borrowing.

To illustrate, let's consider a simple example: A bank lends $100,000 to a business. The credit risk here is that the business may fail to generate enough revenue to repay the loan, leading to potential financial loss for the bank. The bank assesses this risk before approving the loan, often through credit scores, financial statements analysis, and the borrower's repayment history.

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