FINRA Practice Exam 2025 – Complete Prep Guide

Credit risk is a fundamental risk that affects all borrowers issuing bonds, regardless of the currency used. This risk pertains to the possibility that a borrower will fail to make the required payments on their debt obligations, which includes both interest and principal repayments.

All bond issuers, whether they are sovereign nations, corporations, or municipalities, are subject to scrutiny regarding their ability to meet these obligations. Factors such as the issuer's financial health, creditworthiness, and overall economic conditions play a significant role in determining their credit risk. Since this risk is inherent to the borrowing process, it is applicable across different currencies and does not change with the fluctuations in foreign exchange rates or interest rates.

Other types of risks, such as currency risk and interest rate risk, can affect bonds issued in specific currencies or under particular market conditions. Liquidity risk, on the other hand, pertains to the ease of buying or selling the bond in the market. Thus, credit risk stands out as the universal risk affecting all bond issuers, making it the most pertinent choice in this context.