Which type of risk is associated with a borrower's failure to repay a loan?

Credit risk is the correct answer because it specifically pertains to the risk of loss arising from a borrower's inability to fulfill their financial obligations, such as repaying a loan. This risk exists when lenders provide credit or capital to borrowers, and it encompasses the potential for defaults or late payments, which can result in financial loss for the lender.

Credit risk is particularly significant in financial transactions, as various factors, such as the borrower's credit history, income level, and economic conditions, can influence their ability to repay the debt. Financial institutions often assess credit risk through credit scores and other evaluation methods to determine the likelihood that a borrower will default, helping them manage potential losses effectively.

Other types of risk, such as market risk, relate to broader economic movements and changes in asset prices, whereas investment risk typically refers to potential losses in an investment portfolio. Liquidity risk involves the difficulty of accessing cash or liquidating assets quickly without a substantial price reduction. None of these risks directly address the specific concern of a borrower failing to repay a loan, making credit risk the most relevant option.