# Credit Risk

I am reviewing my 2009 AM answers and have a question about question 9. I don’t remember reading anything in the CFA text about how to calculate the amount of credit risk and it seems as if those LOSs have been removed from this year’s curriculum (specifically 40.1: evaluate the credit risk of an investment position, including forward, contract, swap, and option positions) Is this found somewhere in the text that I am not aware of, or should I not worry about learning something new at this point? Thanks in advance. TheChad

It should be intuitive… if you are given such a problem, try to calculate the payoff (expected or current - depending on the question)… and see if it has a “plus”, a “minus” sign or simply zero… this will determine who owes whom => who bears the risk that the other side will go bankrupt and not pay the dues… usually, if your payoff ends up being positive, then your counterparty will owe you, and you will be the one bearing credit risk… If, however, the payoff is negative, than your counterparty bears the risk…

kurmanal Wrote: ------------------------------------------------------- > It should be intuitive… if you are given such a > problem, try to calculate the payoff (expected or > current - depending on the question)… and see if > it has a “plus”, a “minus” sign or simply zero… > this will determine who owes whom => who bears the > risk that the other side will go bankrupt and not > pay the dues… usually, if your payoff ends up > being positive, then your counterparty will owe > you, and you will be the one bearing credit risk… > If, however, the payoff is negative, than your > counterparty bears the risk… Thanks for your reply, however, I understand that part…the part the gets me is the calculation of the credit risk…this is definitely a weak area of mine, so maybe I am just dull in not understanding it better. Best, TheChad

was there an error in the 2009 am exam, question 9? the guy is long a 50 mill euro contract @ 1.63euro/cad, spot is 1.64 euro/cad, hes CDN. shouldnt he have the credit risk?