ABC Corp has a $1 million swiss franc denominated foreign currency receivable from Reness Corp. a swiss based retailer due in 60 days that it wishes to hedge. ABC enters into a forward contract with Random Bank, ( a single BBB rated bank) that states that in 60 days, ABC will receive $800,000 and pay 1 million swiss francs, thus hedging the receivable from a market risk point of view.
Using the concept of dynamic credit exposure explained in the Handbook of Credit Risk Management, explain how you would measure the credit risk associated with the forward foreign exchange contract. Do not measure the actual credit risk…….just explain the steps you would take and factors you would consider in measuring the credit exposure. Please limit your response to no more than one page.