Question 3

Consider an asset with a price of R190. A new forward contract on the asset expires

in six months with a risk-free rate of 5.4% (discreet compounding). Three months

after you entered into the contract, the price increased to R205 while the riskfree

interest rate remained the same. Calculate the credit risk if you have a long

position and indicate whether you or the counterparty bears this risk.