'Forward Contracts on Bonds' question question

tarik64

Example from Schweser SS17:

Question:

A forward contract covering $10m face value of T-bills that will have 100 days to maturity at contract settlement is priced at 1.96 on a discount yield basis. Compute the dollar amount the long must pay at settlement for the T-bills.

Answer:

Unannualize the discount rate: 0.0196 * (100/360) = 0.005444
Settlement price: $10m * (1-0.005444) = $9.95m

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Interpretation (expanding a bit more than the Schweser contents):
In order for long to profit- if the above contract is executed, the interest rate at/or before the settlement date must be either at or below the current rate, where the value of the T-bill will either be stable or increase. Long can have losses if the interest rate increases and value of the T-bill declines.

If a short was to execute the bilateral contract, the effect will be opposite, i.e. the short would sell at the same 1.96% rate and would profit from a rise in the discount rate and a loss in case of a rate decrease at/or before the settlement date.
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Is the interpretation above correct.

Thanks!