Potential credit risk exposure on the forward contract

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Reference no: EM131567842

Six months ago. Textile Manufacturing Inc. entered into a 9-month forward contract with Spin Mills Company to purchase 36,000 tons of yarn. At the time the forward was entered into. 36,000 tons of yarn was priced at EUR 92.0 million but is currently priced at EUR 94.0 million. The continuously compounded risk-free rate has remained stable at 3.0% per year and is not expected to change during the entire contract period. Assuming the forward is fairly priced. What is the current potential credit risk exposure on the forward contract and who bears the risk?

A. EUR 0.610 million; Spin Mills Company bears the potential credit risk.

B. EUR 0.610 million; Textile Manufacturing Inc. bears the potential credit risk.

C. EUR 1.308 million; Spin Mills Company bears the potential credit risk.

D. EUR 1.308 million; Textile Manufacturing Inc. bears the potential credit risk.

Reference no: EM131567842

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