Question

Which of the following is NOT something commonly used in the evaluation of credit risk?

A. Cash flows
B. Contingencies
C. Capacity constraints
D. Character of management
E. Communication

Answer 1

Capacity constraints is not commonly used in the evaluation of credit risk.

Step-by-step explanation:

Of the options provided, capacity constraints is NOT something commonly used in the evaluation of credit risk. When evaluating credit risk, financial institutions typically consider factors such as a borrower's ability to generate cash flows, the presence of contingencies that could affect repayment, and the character of management in terms of their past behavior and reputation. Effective communication between the lender and borrower is also important for a thorough evaluation of credit risk.