Derivatives Q71

71NIT fund manager is required to sell 35,000 shares of NRL in three months. He is concerned the price of NRL shares will decline during the 3- month period, so he enters into a deliverable equity forward contract with HBL to sell 35,000 shares of NRL in three months for PKR 250 per share. When the contract expires, NRL is trading at PKR 200 per share. The fund manager will most likely:

Option : B
Explanation : The fund manager entered into a contract to sell the stock to HBL at PKR 250 per share in 3 months’ time. 35,000 * PKR 250 = PKR 8,750,000. Option B is correct because it is a deliverable contract. If it was a cash settled contract, then option C would be correct.

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