Which of the following is a financial risk associated with lending?

Credit risk is a financial risk associated with lending because it refers to the possibility that a borrower will default on their repayment obligations. This risk is critical for lenders as it directly impacts their potential returns and profitability. If a borrower is unable to repay the loan, the lender may incur a loss, making it essential for lenders to assess the creditworthiness of borrowers before granting loans.

In lending scenarios, understanding the borrower's financial history, income stability, and overall ability to repay the loan helps manage credit risk effectively. Lenders often use credit scores and other financial indicators to evaluate the likelihood of default and make informed lending decisions. Thus, credit risk plays a pivotal role in the lending process, influencing interest rates, loan terms, and overall credit availability.

Other types of risk mentioned, such as liquidity risk, involves the difficulty of converting assets into cash without a substantial loss in value. Investing pertains to risk associated with the potential loss of capital in securities or other investments. Operational risk focuses on the risks arising from failures in internal processes, systems, or external events. While these risks are significant in their own aspects, they do not directly correspond to the specific risks faced when lending money to borrowers.