Which of the following best describes the price of a forward contract? The forward price is: A) always expressed in dollars. B) the amount it costs to purchase the forward contract. C) always equal to the market price at contract termination. D) the price that makes the values of the long and short positions zero at contract initiation.
B?
I’m going with C
d
D
d
D. Arbitrage if not right?
Anyone want to explain why D?
but can’t it be off-market forwards?
Off market forward would be a different story, but it asked for the best answer.
stunna: good thinking , that’s true actually. Dont think Schweser even thought about that However, C cant be right either. That would be true for futures though
The answer is D Schweser says… The forward price is the contract price of the underlying asset under the terms of the forward contract, and is the price that makes the values of the long and short positions zero at contract initiation. It is not the amount it costs to purchase the forward contract. The forward price is expressed in terms of the underlying asset, and may be a dollar value, exchange rate, or interest rate. The value of a forward contract comes from the difference between the forward contract price and the market price for the underlying asset. These values are likely to be different at contract termination, which will result in a profit for either the long or the short position.
Wa_Wa Wrote: ------------------------------------------------------- > The answer is D > > Schweser says… > The forward price is the contract price of the > underlying asset under the terms of the forward > contract, and is the price that makes the values > of the long and short positions zero at contract > initiation. It is not the amount it costs to > purchase the forward contract. The forward price > is expressed in terms of the underlying asset, and > may be a dollar value, exchange rate, or interest > rate. The value of a forward contract comes from > the difference between the forward contract price > and the market price for the underlying asset. > These values are likely to be different at > contract termination, which will result in a > profit for either the long or the short position. What dont you get? What do you need to be explained?
Which of the following best describes the price of a forward contract? The forward price is: A) always expressed in dollars. Not true can be other currencies B) the amount it costs to purchase the forward contract. The forward contract does not cost anything C) always equal to the market price at contract termination. If that would be true nobody would make profits by entering into forwards D) the price that makes the values of the long and short positions zero at contract initiation. Bingo this is a basic question