Assume there is a 1-yr forward contract at $106 with the risk free rate of 5% and it is 3 months into the life of this contract. The spot market is at $104. Determine any cash flow owed between the parties, assuming mark to market every 3 months.
$104 - $106 / (1.05^(9/12)) = $1.8087
Short owes the long this amount.
I’m not fundamentally understanding why the short owest his money to the long. If the contract is worth the discounted value of $102.1913, then isn’t the person who is long the forward contract losing and the person who wrote (short) the contract winning on the trade? I guess I’m not visualizing why this is a payment by short to long, and not vice versa.