Since forward contracts are negotiated over-the-counter and the parties have maximum flexibility when setting the terms and conditions, credit and counterparty risk does not exist.

Question

Quizplus · Accepted Answer

Forward contracts do have credit and counterparty risk because they are negotiated over-the-counter and there is no central clearinghouse. The parties involved in the contract are exposed to the credit risk of each other, and in case of a default, there is no guarantee that the other party will honor the contract.

Since Forward Contracts Are Negotiated Over-The-Counter and the Parties Have