Derivative Investments【Reading 54】Sample
The price of a forward contract: A)
| is the settlement price for the underlying asset. |
| B)
| must be equal to the market price at contract termination. |
| C)
| is equal to the value of the contract in equilibrium. |
|
The price of a forward contract is the price of the underlying asset that the long will pay to the short at settlement (for a deliverable contract). The value of a forward contract comes from the difference between the forward contract price and the market price for the underlying asset. This difference between price and value is a key concept to understand. A forward contract has only one price, which applies to both the long and to the short. |