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LOS b, (Part 2): Discuss how termination alternatives prior to expiration can affect credit risk.
Q1. When a party to a forward contract terminates the contract prior to the original expiration date by entering into a perfectly offsetting forward contract with a second counterparty:
A) there is no future liability, but default risk remains for all parties until the original contract settlement date.
B) the party terminating the contract is exposed to default risk, but has no further asset price risk.
C) the party terminating the forward contract has no default risk, but both counterparties face default risk.
Q2. An investor can exit a forward position prior to contract expiration by all of the following methods EXCEPT:
A) making a cash payment or accepting a cash payment by agreement with the original counterparty.
B) entering into an offsetting contract with the original counterparty.
C) exercising the early delivery option.
Q3. Which of the following is NOT a method of terminating a forward contract prior to expiration?
A) Exercise a swaption.
B) Make an agreed upon payment to the counterparty.
C) Enter into an offsetting forward contract with the original counterparty.
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发表于 2009-3-2 09:44
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