Current Credit risk in swap

I am guessing because there are quaterly payments, a swap party can be in default… and the counterparty loses MV. In contrast, a european option is settled at expiration.

Can the short side of an european option declare bankrupt? If so, the long side will lose the MV too. This is not consistent unless, we say swap has current credit risk at the settlement date.

hezagenius: I have the solution: it simply says that since the party was short a swap with a negative market value, they were subject to default by the couterparty and subject to credit risk. I don’t think (remember) if the question asked for a desigination of potential/current, just who was subject to credit risk. If they were short, that would mean they were recieving fixed, which I think they were…this is point hopefully you can clarify since the answer doesn’t repeat this fact.