8010 Exam Dumps | Which of the following carry greater counterparty risk: a forward contract on a 10 year note, or a commercial

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PRMIA.8010.v2022-06-27.q87
Question 15

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Question 15/87

Which of the following carry greater counterparty risk: a forward contract on a 10 year note, or a commercial paper carrying a AA credit rating with identicalmaturity and notional?

A. The forward contract has greater credit risk as its future gains are unknown

B. Credit risk can not be compared in these terms

C. They both carry the same credit risk

D. The commercial paper has greater credit risk as the entire notional is outstanding

Correct Answer: D

Explanation
The commercial paper has greater credit risk as the entire notional is outstanding. On the forward contract, only the replacement value of the contract, which normally would be a mere fraction of the notional, would be at risk.
Therefore Choice 'd' is the correct answer.

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