Forward - Gains & Losses

Hi there, I’m really trying to figure out derivatives because I Really don’t remember much from last year. I’m stuck on Question # 2 C in chapter 60. Ok from what I understand, a positive value of a fwd contract means the payment is made by the long to the short whereas a negative payment refers to a payment made by the short to the long. However in question 2c, the answer is -11 and it says that it’s a gain for the short… Can anyone help me understand that?

Could you post the question?

canadiananalyst Wrote: ------------------------------------------------------- a positive value of a > fwd contract means the payment is made by the long > to the short whereas a negative payment refers to > a payment made by the short to the long. It’s actually the opposite! The equation is to calculate V(L) which is value of the long position. So, if it is a positive value, long gains. I don’t have the book with me right now, but if the equation gives a negative value, the short gains and receives payment from the long.

Thanks guys but I finally figured it out… instead of focusing on positive and negative values, it’s better to go by this rule of thumb: If price of asset is worth more than forward price, the short pays the long If price of asset is worth less than forward price, the long pays the short

Yes, think Spot Price (current price) - Forward price(locked in at). If current price of asset is higher, long gains.