) THE CURRENT AMOUNT OF POTENTIAL CREDIT RISK IN THE FORWARD CONTRACT POSITION IS CLOSEST TO

6.) The current amount of potential credit risk in the forward contract position is closest to:

A.

$0.

B.

$1.53.

C.

$12.28.

Answer = A

The value of the long position is $207 – $200/(1.055)

^0.5

= $12.28. This result means that

the short (the bank) owes the long, so the bank would suffer no loss if the long went

bankrupt.

“Risk Management,” by Don M. Chance, Kenneth Grant, and John Marsland