Explanation
The current exposure is negative, so there is no immediate credit exposure. However, since the price ofthe derivative is volatile, we can reasonably expect the value to be greater than zero sometime in the future. This is a stochastic variable which will have a distribution, and not just a unique value, in the future that will represent the credit exposure.Since there is no unique value, a conservative approach is to pick a quintile of the distribution, and use that as the future value of the derivative contract, with the assurance that the probability of the credit exposure exceeding that quintile is knownand has been consciously selected. This number can then be converted to a loan equivalent amount for credit risk purposes. Therefore Choice 'b' is the correct answer. Choice 'a', Choice 'd' and Choice 'c' are incorrect for these reasons.