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LOS a: Differentiate between the positions held by the long and short parties to a forward contract in terms of delivery/settlement and default risk. ffice ffice" />
Q1. Default risk in a forward contract:
A) only applies to the short, who must make the cash payment at settlement.
B) is the risk to either party that the other party will not fulfill their contractual obligation.
C) only applies to the long, and is the probability that the short can not acquire the asset for delivery.
Correct answer is B)
Default risk in forward contracts is the risk to either party that the other party will not perform, whether that means pay cash or deliver the asset.
Q2. The short in a forward contract:
A) has the right to deliver the asset upon expiration of the contract.
B) is obligated to deliver the asset upon expiration of the contract.
C) is obligated to deliver the asset anytime prior to expiration of the contract.
Correct answer is B)
The short in a forward contract is obligated to deliver the asset (in a deliverable contract) on (or close to) the expiration date.
Q3. The party to a forward contract that is obligated to purchase the asset is called the:
A) long.
B) short.
C) receiver.
Correct answer is A)
The long in a forward contract is obligated to buy the asset (in a deliverable contract). The term receiver is used with swaps.
Q4. Which of the following statements about forward contracts is least accurate?
A) A forward contract can be exercised at any time.
B) The long promises to purchase the asset.
C) Both parties to a forward contract have potential default risk.
Correct answer is A)
Forward contracts typically require a purchase/sale of the asset on the expiration/delivery date specified in the contract. The other statements are true.
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发表于 2009-3-2 09:40
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