Credit risk

The risk that an issuer may be unable to meet the interest or capital repayments on the loan when they fall due. Generally, the higher the credit risk of the issuer, the higher the interest rate that investors will expect in order to risk lending funds to the issuer Ratings agencies like Standard & Poor’s and Moody’s provide an independent credit rating service that allows investors to assess and grade issuers. For example, the Australian Commonwealth Government has the highest possible credit rating of AAA (meaning it has very low credit risk)

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