Currency Forward Credit Risk--2008AM Q7

The answer said" Compare the forward rate 15 JPY/ZAR and current spot rate 17.5 JPY/ZAR, the short forward party received money and bear the credit risk? Could sb pls help to list the details of the formula to calculate the value of forward? puzzed is it should be V(forward ) =St- Ft=17.5-15? thanks

It may be easier to look at the question on how many ZAR per JPY since RR is selling JPY. Forward rate = 1 ZAR / 15.00 JPY = 0.067 ZAR / JPY Spot rate at maturity = 1 ZAR / 17.5 JPY = 0.057 ZAR / JPY So the – value of forward for RR’s short position = Forward rate - Spot rate = 0.067 - 0.057 = 0.01 RR will have a gain, so it exposes to credit risk.

At my 1st sight, hardly believe CFAI gives a quite straight forward Q. no calculation needed. James’ explanation is very detailed. shorted the JPY , and JPY depreciated, the RR earns $$, bears credit risk.