Forward Contracts example, factor

mdfb79

CFAI Book 6, RD.58, PG. 50, Q3.

Question 3, part d and e.

Why do we factor in the "loss on asset" and "gain on asset"?

For example, in part d. The value is 98-105= -7 (which is a gain to the short). Why do I have to factor in the loss of 2?

Thanks!

kkn006

in those problems they are just showing you how the entire deal looks like.

when you think in terms of the gain/loss on the contract, the underlying itself (which is by itself a separate part) also is undergoing a gain or a loss.

seller of the contract may gain on the contract, but could end up losing on the asset. So they are providing a total picture..

CP

19831985

Makes sense. Thanks cpk123!