Reading 68: Forward Markets and Contracts- LOSb(part 1) party, settled, forward, contract, procedures

yanghon

 

LOS b, (Part 1): Describe the procedures for settling a forward contract at expiration.

 

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.

 

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.

 

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