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LOS b, (Part 1): Describe the procedures for settling a forward contract at expiration. ffice ffice" />
Q1. A forward contract that must be settled by a sale of an asset by one party to the other party is termed a:
A) take-and-pay contract.
B) physicals-only contract.
C) deliverable forward contract.
Correct answer is C)
A deliverable forward contract can be settled at expiration only by actual delivery of the asset in exchange for the contract value. The other terms are made up.
Q2. Some forward contracts are termed cash settlement contracts. This means:
A) at contract expiration, the long can buy the asset from the short or pay the difference between the market price of the asset and the contract price.
B) either the long or the short in the forward contract will make a cash payment at contract expiration and the asset is not delivered.
C) at settlement, the long purchases the asset from the short for cash.
Correct answer is B)
In a cash settlement forward contract there is a cash payment at settlement by either the long or the short depending on whether the market price of the asset is below or above the contract price at expiration. The underlying asset is not purchased or sold at settlement.
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发表于 2009-3-2 09:42
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