# swap credit risk

in sample 1 , when the current market value of swap is negative, can wen say that, manager has net negative cash flow,so the counterparty has credit risk if the manager defaults on the net payment which is the reverse of the answer.~

woe,any help??

You need to provide exam #- q # etc-where are we going to look for it ??

doesn’t it depend on the type of swap? if notionals were swapped (i.e., currency swap) then both parties have credit risk if an int rate swap more risk in the middle…beg both parties performed due diligence recently and at the end not much risk left for either party unless im confusing this with something else in my head?

question 23!!!

Provided that negative means like you say net negative cf: that means you have to pay more than the CP, You have to pay and they are waiting for you pay. They have the credit risk. caz you may default and not pay.

in your the counterparty has potential or current risk (depends on when the payment is due) and it seems CFA doesn’t distinguish among these two types of credit risk in the sample 1

Or in sample #2 I think!!! To them Current = Potential…who knew.

That same day, one of the firm’s fixed-income portfolio managers entered into a 1-year, plain vanilla interest rate swap with quarterly resets last month. The portfolio manager receives fixed-rate payments and pays floating-rate payments. The current market value of the swap is \$(468,000). answer: Triden is short a swap with a negative market value. This market value is at risk if Triden’s counterparty defaults. The current credit risk of a European option is zero until the expiration date. saying “short” is due to receiving fixed-rate payments and paying floating-rate payments is the reverse of vanilla swap???

^I got that one wrong b/c I put 0 for both b/c Current = Now according to Stalla, but according to this Exam Current = Potential, b/c the SWAP doesnt terminate for another 2 months I thikn… Also I guess since the worded it Receives Fixed and Pays Floating they are the Seller, vs saying Pays Floating, Receives fixed would be teh Payer???