there are a lot of discussion over the Japanese Yen put option and we are pretty sure that Maple bear the credit risk. Can anybody confirm whether Maple also bears credit risk for the first EURO/CAD forward? I think I messed up this one.
no one has memory for this question?
pretty sure it was a credit default swap
Counter party faces credit risk Currency foward: Spot/(1+Interest rate of the currency to be bought)^t - Forward rate/(1+ineterest rate of the currency to be sold)^t Per CFA book.
i think some people here had Maple Leaf with credit exposure on the forward. i think i had counterparty did—as ML was long euros and euros appreciated (from 1.63 C$ to 1.64C$ or something like that). so risk is ML defaulting on contract in order to execute in spot market? i could be very wrong on this—i was in a hurry and had to come back to it at the end. KR
actually, pretty sure i am wrong. if he is long, i believe he is buying euros/selling C$ and can get them cheaper with forward. i changed my answer in last 5 minutes on this one. damn. just goes to show, always go with your gut first.
i think maple had the credit riskj 3000 was the answer approx…i surely may be wrong though:))
JarJarBinks Wrote: ------------------------------------------------------- > i think maple had the credit riskj 3000 was the > answer approx…i surely may be wrong though:)) got the same answer - I have no idea whats correct anymore but at least someone did something I did 
I was so focused on the calcualtion (didn’t remember the formula and need create my own) that I forgot to check the sign of my calcuation. I put the counterpart has the credit risk, but think I might be wrong because I remember that the Euro appreciated and Maple long Euro. Could some body verify my memory - did Euro appreciate implied forward rate based on new spot rate - forward contract price > 0? - did Maple long Euro? Thanks!
The party long the forward had the credit risk as they booked at 1.63 and it was now 1.64…in the money, when discounted they had credit risk.
You have to discount both 1.63 and 1.64. Refer CFA book example.
tom18606 Wrote: ------------------------------------------------------- > You have to discount both 1.63 and 1.64. Refer CFA > book example. - correct or you can compare the contract price with the new implied forward price by the new spot rate (Interest Rate Parity formula). So the contract price is 1.63USD/Euro and the new Spot price is 1.64USD/Euro. How about the implied forward price? = 1.64*(1+rf in USD)^T/(1+rf in Euro)^T. I couldn’t recall the interest free rates for USD and Euro. Anybody can help?
Jscott24 Wrote: ------------------------------------------------------- > pretty sure it was a credit default swap Jscott24, I see you are now over this too.
I still think tt was forward contract (It’s 1.40 am and I had 4 double shots of Jack Daniels from ESPN cafe, so memory lost). Refer the CFA book on risk management. There is a similar example.