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How does an investor computes default risk of investee securities?

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Question added by Jawad Qureshi , Financial Consultant , AFAZA FZ LLC/Midas Safety Dubai
Date Posted: 2014/10/20
Malik Khalid Mahmood
by Malik Khalid Mahmood , Regional Finance Manager , Leosons International FZ LLC

When debt obligation are not being met by the companies, Lenders and investors are exposed to default risk.  In most of the experience, to cover the risk lenders suppose to charge interest on their lendings.  For extention of loans, or to advance more money, the lenders or investors calculate some ratio's to check the payout position of the company and take the necessary decisions.

VENKITARAMAN KRISHNA MOORTHY VRINDAVAN
by VENKITARAMAN KRISHNA MOORTHY VRINDAVAN , Project Execution Manager & Accounts Manager , ALI INTERNATIONAL TRADING EST.

The event in which companies or individuals will be unable to make the required payments on their debt obligations. Lenders and investors are exposed to default risk in virtually all forms of credit extensions. To mitigate the impact of default risk, lenders often charge rates of return that correspond the debtor's level of default risk. The higher the risk, the higher the required return, and vice versa.

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