Derivatives - Derivatives Section 2
- Option : B
- Explanation : The value of a forward contract at initiation is zero; therefore, the forward price is greater than the value of the forward contract at initiation. Just before termination, the value of the forward contract will be equal to the spot price minus the forward price.
- Option : B
- Explanation : Only the value of the forward contract will adjust as market conditions change. The forward price is fixed at the initiation of the contract
8. The value of the forward contract at expiration is equal to the:
- Option : B
- Explanation : The holder of the forward contract gains the difference between the price of the underlying and the forward price.
9. The price of a forward contract is decided:
- Option : A
- Explanation : The price of a forward contract is decided at the initiation of the contract.
- Option : A
- Explanation : Since the portfolio manager takes a long position and the price goes up, she benefits. The benefit is 25,000 * (22 – 20) = 50,000.
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