
Explanation:
A credit loss occurs when a counterparty defaults and you have a positive replacement cost - meaning you would have to pay more to replace the contract in the current market.
Option A: ✓ Correct
Option B: ✗ Incorrect
Option C: ✗ Incorrect
Option D: ✗ Incorrect
Therefore, only Option A represents a situation where counterparty default would cause a credit loss.
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If a counterparty defaults before maturity, which of the following situations will cause a credit loss?
A
You are short Euros in a one-year euro/USD forward FX contract, and the euro has appreciated.
B
You are short Euros in a one-year euro/USD forward FX contract, and the euro has depreciated.
C
You sold a one-year OTC euro call option, and the euro has appreciated.
D
You sold a one-year OTC euro call option, and the euro has depreciated.