EOC derivatives- Forward markets and contracts

CFA Level II
#1

I have doubts in question

  1. B) The solution states that vaue is negative and the payment is from short to long.

Isn’t it supposed to be the other way round?

Also, I have a doubt in question 4) D

What is the actual ratioanle behind the gain on asset being shown as 35?

#2

Note that it’s an off-market forward: not zero-value at initiation.

The value to long at initiation is −$30.44. Long won’t enter into it unless the initial value is zero, so short has to pay long $30.44 to bring the value up to zero.

This has been discussed several times here. The loss is $35: you could have waited and bought it at $190 instead of paying the $225 to which you agreed in the forward contract.

#3

Thanks for the explaination.

The second question I asked u shows a gain of 35.

Do u have any link of the second part that I asked u?

As in a link of the same question being asked by some one else

#4

I don’t know any links.

Try the search function.

#5

okay, thanks a lot :slight_smile:

#6

My pleasure.