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    Question

    The level of risk that arises from exposure to a single

    counterparty or sector, and it has the potential to produce large amounts of losses is called:
    A Default Risk Correct Answer Incorrect Answer
    B Concentration Risk Correct Answer Incorrect Answer
    C Reputation risk Correct Answer Incorrect Answer
    D Systemic Risk Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    Concentration risk is the level of risk that arises from exposure to a single counterparty or sector, and it offers the potential to produce large amounts of losses that may threaten the lender’s core operations. For example: If a lender takes a large amount of exposure to one borrower who is having one type of business, then there is a concentration risk for the lender.

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