Suppose that in Problem 20.17, the 6-month forward rate is also 1.50 and the 6-month dollar risk-free interest rate is 5% per annum. Suppose further that the 6-month dollar rate of interest at which the counterparty can borrow is 5.5% per annum. Estimate the present value of the cast of defaults asuming that defaults can occur either at the 6-month paint or at the 1-year point? (If a defalt occurs at the 6-month point, the company's potential loss is the market value of the contract.) 20.19 "A long forward contract subject to credit risk is a combination of a short position in a no-default put and a long position in a call subject to credit risk. Explain this statement. 30.20.

Explain why the credit exposure on a matched pair of forward contracts resembles a straddle