this is silly because this is not the first time i am reading this material, however, only now has this question been raised in my head! in the chapter on commodity fwds, in a reverse cash and carry arbitrage, if we take a long position in a fwd contract @ $0.20, why is our cash flow in Yr 1 = $0.20-F(0,1)?? Arent we supposed to be paying $0.20 at yr 1 ?? please tell me its a stupid question else i will wonder how i never picked this up last yr…

I also found it silly initially but then looked again after you posted. What this is saying is if you short forward transaction, at year 1 = .20 - F(0,1), means you are paying F(0,1) and receiving the collateral worth at sport which is .20. So the equation is good when the forward price is not equal to .20. So in this case its .20 - $.20.

if we short the forward, we will be receiving F(0,1) and not paying…

why did the long position in the first post become a short position on the 2nd post? if you took a long position you bought the underlying. Now 1 year later - you sell it at the forward price and receive F(0,1). So if you paid 0.20 - your cash flow is 0.20 - F(0,1) - a net outflow.