In which scenario would there be a potential for custodial credit risk?

Custodial credit risk primarily refers to the risk that a financial institution or custodial entity holding cash or securities may default, resulting in the loss of assets for the owner. This risk is particularly relevant when assets are in transit between the time they are sold or purchased and when the transaction is finalized or settled.

In the situation where investments are sold after the sale date but prior to the settlement date, there is a potential for custodial credit risk because the asset has left the seller's control, but ownership has not yet officially transferred to the buyer. If the custodial entity were to default during this period, the seller might not receive the payment for the sold assets or may suffer losses.

Involvement in the purchasing scenario after the sale date, but before the settlement date, doesn’t inherently create custodial credit risk for the current owner, as they have not yet relinquished control over the assets. Therefore, the focus is on the seller's perspective during a sale when custodial credit risk is present due to the interim period between the sale and settlement.

Thus, the correct choice accurately highlights the risk inherent in the scenario where assets are sold but not yet settled, marking the period when custodial credit risk can become a concern for the seller.