Derivatives Q66

66Rabia and Saman, two CFA candidates, make the following statements about an asset which neither pays interest nor divided. Also, there are no storage costs associated with the asset. Rabia: Just before termination, the value of a forward on that asset is zero. Saman: At initiation, the price of a forward contract on that asset is greater than the value of the contract. Which of the following is correct?

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.

Forgot your password?

I agree with the Terms.