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BT Motors and New Atlas bank are two parties of a derivative contract to hedge exchange rate risk. At the end of the contract, BT Motors has a net loss position of $6.9 million but refused to pay the entire amount. Which of the following sub-types of credit risk best describes this situation?
A. Bankruptcy risk
B. General market Risk
C. Settlement risk
D. Default risk
This is because BT Motors has failed to fulfill their financial obligation by refusing to pay the net loss position on the derivative contract. Default risk refers to the possibility that a borrower will fail to meet its debt obligations.
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