COLLAPSE From the standpoint of the borrower, is long term or short term credit

Question

COLLAPSE From the standpoint of the borrower, is long term or short term credit riskier? Would it ever make sense to borrow on a short term basis if short term rates were above long term rates? COLLAPSE From the standpoint of the borrower, is long term or short term credit riskier? Would it ever make sense to borrow on a short term basis if short term rates were above long term rates? COLLAPSE From the standpoint of the borrower, is long term or short term credit riskier? Would it ever make sense to borrow on a short term basis if short term rates were above long term rates?

Explanation / Answer

When the short term rates are higher than long term rates it indicates an crises market.

In crises scenario no one would be willing to lend at short term as they are unsure of the borrower credit worthiness, but they would lend for long term as the markets are expected to recover from crises in future.

So in crises scenaio traders can borrow short term if they have onligations to pay off debts.

COLLAPSE from standpoint of borrower is not riskier for short and long term.The credit risk is for the lender since he will lose his money and not the borrower.

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