Forward contract value

Hello,

Looking at how to value a forward contract at time = T, the formula is:

(F(T) - F) * # contracts = forward profit.

Wouldn’t the formula instead involve the spot rate instead of the value of the forward contract at maturity? Since we are betting on the future. So F(T) should instead be the spot rate at time T (from the view of the part buying the base currency).

Thank you

Today you enter into a contract to buy wheat (or whatever) in 180 days.

One hundred twenty days from today you want to get out of it. The price you’ll receive is not the spot price 120 days from today, because you have no wheat to deliver. You won’t get any wheat for another 60 days. So the price you receive is the 60-day forward price for wheat.

What happens if the transactions is done at expiration, instead of 60 days or 120 days into the 180 day contract?

In any case, you don’t “sell” the contract you have and you don’t generally physically deliver. What usually happens is you purchase a contract to offset your position. If you are long 30 wheat contracts, at expiration you would go short 30 wheat contracts (at expiration they would be spot contracts) and offset the position you have been long in.

makes sense, because the forward price at expiration should be the same as the spot price?

Well, the forward price has been agreed (say) 180 days in advance and doesn’t change. If you haven’t entered in an offsetting short forward during the life of the contract, at expiration you have no other choice but to buy at spot price (or physically deliver).