Derivatives Q72

72NIT 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 an 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 : C
Explanation : Since it is a cash settled contract, the fund manager will receive 35,000 * PKR (250 - 200) = PKR 1,750,000. Option B is correct only if it is a deliverable contract.

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