Answer: both a profitable long forward position and an in-the-money long call option position.

## Explanation Counterparty credit risk refers to the risk that the counterparty to a financial contract will default on their obligations. Let's analyze both scenarios: ### 1. Profitable Long Forward Position - In a long forward position, the buyer agrees to purchase an asset at a predetermined price at maturity. - If the market price at maturity is **higher** than the forward price, the long position is profitable. - At maturity, the seller (short position) owes the buyer the difference between the market price and forward price. - If the seller defaults, the buyer loses this profit. - **Therefore, the buyer faces counterparty credit risk in a profitable long forward position.** ### 2. In-the-Money Long Call Option Position - In a long call option, the buyer has the right (but not obligation) to purchase an asset at the strike price. - If the market price is **higher** than the strike price at expiration, the call is in-the-money. - The buyer would exercise the option to buy at the lower strike price. - The seller (writer) of the call option must deliver the asset at the strike price. - If the seller defaults and fails to deliver, the buyer loses the opportunity to profit from the price difference. - **Therefore, the buyer also faces counterparty credit risk in an in-the-money long call option position.** ### Key Difference from Options vs. Forwards - For forwards: Both parties face counterparty risk throughout the contract's life. - For options: Only the **buyer** faces counterparty risk (the seller receives the premium upfront and has no further obligations). - At maturity, the risk materializes only if the position is profitable/in-the-money. **Conclusion:** The buyer faces counterparty credit risk from the seller in both scenarios, making option C correct.

Author: LeetQuiz .