Swaps - Credit Risk following, highest, someone, please

anshultongia

Can someone please answer the following questions:

IR SWAP
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What's the counterparty risk at initiation?
What's the counterparty risk at the middle?
What's the counterparty risk at expiry?

When is counterpatry risk the highest?

FX SWAP
--------------------------
What's the counterparty risk at initiation?
What's the counterparty risk at the middle?
What's the counterparty risk at expiry?

When is counterpatry risk the highest?

Equity SWAP
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What's the counterparty risk at initiation?
What's the counterparty risk at the middle?
What's the counterparty risk at expiry?

When is counterpatry risk the highest?

Thanks!

Analyze_This

Thanks for the question/answer

I think the key is to know that because notional IS exchanged at the beginning and again at the end, currency swaps have credit risk from the middle all the way to the end

but

interest rate and equity swaps don't exchange notional, so the credit risk is higher in the middle (which is when parties begin to make payments)

as always, I'm not positive on these facts, and if somebody reads this and says No that's incorrect, please post the correct answer

RMontgomery

beginning of all swaps - since the two sides are equated to have a 0 value - there is no immediate credit risk, but potential credit risk is present.

In an IR SWAP and Equity Swap ->
towards the middle of the swap - potential credit risk is the highest. (since there are a lot of payments still left to be swapped, and if a party is already in trouble, that is not going to reduce).

This risk belongs to the party that is to get the positive payoff.

FX Swap:
Credit risk is highest towards the end of the swap - since the principal payments need to be swapped in the opposite currency at the end, unlike in an IR or Equity Swap.

CP

SFoyil

quite sure credit risk is highest in the midlle as CP stated. at the end and beginning credit risk is lowest.

On currency swaps credit risk is high at the end due to the alrge principal to be swapped