Which of the following statements about the parties of a forward are TRUE? I. The party that is long the forward is exposed to default risk II. The party that is short the forward is exposed to default risk III. The clearinghouse is exposed to default risk a) I and II b) III c) II d) I, II and III e) I and III Both parties are exposed to default risk as it’s not an organized trade and there is no clearinghouse involved in Forwards… - Dinesh S
Until you know the price at settlement date either party could be exposed to default, so both parties have counterparty risk. (On settlement date only one will be of course.) So I and II appear true (as you say, “Both parties are exposed to default risk”).
I’d go with A: both I & II are true…both are exposed to risks, There is no clearinghouse involved