Financial risks can generate negative situations for organizations, ranging from indebtedness to the closure of companies, the consequences of financial risks are indebtedness, lack of information for sound decision making, increased costs, reduced production, decapitalization, and penalties.
However, the consequences of financial risks depend to a large extent on risk management and risk minimization. For example, if an organization does not carry out a risk analysis to assess the threats, it will not be able to react in time or prevent any event that could have negative effects such as damaging the company's image or even bankruptcy.
In other words, it is essential to evaluate risks in order to minimize their expression in organizations. Default risk is a type of risk for a bond issuer (or loan debtor) that occurs when it fails to meet its contractual obligations. This type of default may be partial or complete.
On the other hand, credit downgrade risk is the possibility that a rating agency downgrades the credit quality of that asset or that issuer.
Credit risk, on the other hand, is the risk that measures an increase in the profitability of the reference asset with respect to the profitability of a risk-free asset with a similar maturity.