Many financial institutions rely heavily on debt to fund their operations, and they are interconnected by virtue of financing each other's debt positions. Therefore, if one institution cannot pay its debts, it may create cash flow problems for several other institutions. The risk created by this situation is known as

(a) - Credit risk

(b) - Systemic risk

(c) - Inflation risk

(d) - Horizon risk

Question

Business

Obrien

28 February, 22:52

Many financial institutions rely heavily on debt to fund their operations, and they are interconnected by virtue of financing each other's debt positions. Therefore, if one institution cannot pay its debts, it may create cash flow problems for several other institutions. The risk created by this situation is known as

(a) - Credit risk

(b) - Systemic risk

(c) - Inflation risk

(d) - Horizon risk

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Answers (1)

Know the Answer?

Kamila Dominguez · Answer 1

B

Explanation:

Systemic risk occurs when there is a possibility that a company or a sector of the economy may go into crisis and negatively influence the entire economy of a country. They can happen in companies that are extremely relevant to the economy and would influence in many other sectors causing economic crisis