Reading 60: Forward Market Contracts Page 50 Problem 4D There are two components to this problem: the value of the forward at expiration and the asset. Is the following understanding correct. The Value: The investor is long. Since the price of the forward is greater than the asset they investor receives they incur a loss. The Asset: Since the price of the asset is lower than it was at origination, the investor gains because they lack exposure to the asset during that time.
investor loses on the forward because they are long the forward and the price went down to 190. investor gains on the “asset” because they didn’t buy it at 225, even though they could have, so they save the interest money because the price went down. I think you got it but just wanted to put it in my own words.
Thanks Andrew. Thought it was right but had to think about it for a while. Hopefully, it should be 2nd nature come exam time.