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Credit risk refers to the possibility of loss resulting from a borrower's failure to repay a loan or meet contractual obligations. It's a key concern for financial institutions that lend money.

Default risk is the chance that a borrower will be unable to make the required payments on their debt obligations. It's a specific type of credit risk.

The credit spread is the difference in yield between two bonds of similar maturity but different credit quality. Wider spreads indicate higher credit risk.

Credit scoring is a statistical analysis performed by lenders to determine the creditworthiness of a borrower and the likelihood of default.

Exposure at Default represents the total value a bank is exposed to when a borrower defaults. It's a critical component in calculating credit risk.

Loss Given Default measures the portion of an exposure that is not recovered following a default, expressed as a percentage of the exposure.

Probability of Default is the likelihood that a borrower will default on their debt obligations over a certain period, often used in risk models.

Counterparty risk is the possibility that the other party in an agreement will default or fail to live up to its contractual obligation, affecting derivatives and other financial transactions.

Credit derivatives are financial instruments used to transfer credit risk between parties. Examples include credit default swaps and collateralized debt obligations.

A credit rating is an assessment of a borrower's creditworthiness based on their credit history and other factors. Ratings are provided by agencies like Moody's, S&P, and Fitch.

A credit limit is the maximum amount of credit that a lender will extend to a borrower. It helps manage credit risk by setting a boundary on exposure.

Concentration risk arises from a lack of diversification in an investment portfolio or loan book, leading to increased exposure to losses from a single counterparty or sector.

Credit analysis involves evaluating a potential borrower's credit risk by examining financial statements, credit scores, and other qualitative and quantitative factors.

A secured loan is backed by collateral, thereby reducing the lender's credit risk since there is an asset that can be liquidated in case of a borrower's default.

An unsecured loan does not have collateral backing and represents a higher credit risk for the lender since there is no asset to recover in case of default.

A covenant is a clause in a lending agreement that requires the borrower to meet certain conditions or prohibits certain actions, designed to protect the lender's interests.

The debt-to-income ratio (DTI) compares a borrower's gross monthly debt payments to their gross monthly income, used by lenders to assess borrowing capacity and credit risk.

The recovery rate is the percentage of a loan's value or investment that is recouped if the borrower defaults. It is inversely related to Loss Given Default (LGD).

Sovereign risk pertains to the risk of a country defaulting on its financial obligations. It affects the credit risk of securities issued by the government.

A risk premium is the extra yield over a risk-free rate that investors require to compensate them for the risk of default associated with a particular investment.

Underwriting is the process by which lenders and insurers evaluate the risks of lending to or insuring an entity and decide on the terms of the loan or insurance.

An intercreditor agreement is a contract between multiple creditors that determines the priority of their claims and the sharing of collateral in case of a borrower's default.

A subprime borrower is an individual or organization with a poor credit history or low creditworthiness, often charged higher interest rates due to the increased credit risk.

The Altman Z-score is a formula used to predict the likelihood of a business's bankruptcy, calculated by combining profitability, leverage, liquidity, solvency, and activity ratios.