Credit risk question

CFA Level III
#1

Please critique these statements:

  1. Between settlement dates (e.g. forward) current credit risk is zero.

2.Potential credit risk is highest between the middle and latest part of the forwards life.

#2

In the first statement, you have an extra space between the 1. and B while in the second statement, you have no extra space.

#3

#4
  1. There must be MTM in between the settlement dates, then there is credit risk.
#5

  1. Between settlement dates - you will mark to market and your long position might be positive or negative, but because no payments are owed to each other yet, neither you nor the counterparty bears current credit risk. Current credit risk only comes to existence when you have to make or receive a payment.

  2. This I’m not sure but my guess is in the earlier part of the forward’s life, spot price may not have moved away from the forward price much and so potential credit risk will be relatively low. As you get closer to expiration, however, the probability of the other party defaulting becomes higher as the spot might have moved significantly away from the forward price.