Question

Bank A has loaned out funds to a steel manufacturing company, named Steel Works CC. The current balance of the loan is N$1.3 million and it is secured by a piece of land and the corresponding building owned by Steel Works CC. Due to an economic downturn, Steel Works CC suffered a loss for the first time in its 5- year operating history and is currently experiencing some cash flow difficulties. In addition, the land and building that is held as collateral has recently been appraised at only N$ 1,000 000. Based on the information provided above, which of the following risks faced by Bank A have increased? [2]
(a) Bankruptcy risk and default risk.

(b) Bankruptcy risk and settlement risk.

(c) Default risk and downgrade risk.

(d) Default risk, downgrade risk, and settlement risk.

Answer 1

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