Sample 2 *spoiler* credit risk

question relating to swap credit risk. it was negative, the question asks about current credit risk i answered none for a different reason than they gave. given it had a negative value, they have no credit risk at all, its the counterparty, whereas they were looking at it as current credit risk, there was not another payment due on the swap for 3 months or what not. is there anyway they could twist the question around to make what i answered wrong, by changing the wording of the question?

if there was a positive value…then yes …they would have credit risk, but not current …it would be potential…so look out for that…

excellent point. they seem to ask us to quantify the credit risk though, which almost seems to require them to make it “current” rather than potential.

Are you sure you don’t have it backwards?

^^ have what backwards…

negative value to party we are looking at = no current credit risk positive value to party we are looking at = yes to credit risk (but need to determine if current or potential)

Did the question say the MV to the party in question or did it say the MV of the swap? Which side was the party in question on, pay fixed or rec fixed?

it was negative value to the party in the question…hence no credit risk…

it said the value of the swap was -xxxxx to the party we were looking at. there was not enough info to revalue the swap, so had to take the current MV

Then I think your understanding is correct. No credit risk at all. Even if there was credit risk it would only be potential until the next cash flow was due.