20 Questions
In a forward contract, the counterparties are referred to as:
Long position and short position
What is the future point in time when the transaction occurs known as in a forward contract?
Expiration date
What is the price at which the underlying asset is purchased called in a forward contract?
Forward price
What is the advantage of entering into a forward contract?
To avoid price uncertainty and lock in a price for a transaction
What is the underlying asset in a forward contract?
Stocks, bonds, currencies, and commodities
What is the advantage of entering into a forward contract?
Avoiding price uncertainty and locking in a price for a transaction
What is the future point in time when the transaction occurs known as in a forward contract?
Expiration date
What is the price at which the underlying asset is purchased called in a forward contract?
Forward price
In a forward contract, what are the counterparties referred to as?
Long position and short position
What is the underlying asset in a forward contract?
Stocks, bonds, currencies, and commodities
What is the key characteristic of the long forward in a forward contract?
Obligated to purchase an asset from the short forward at a future point in time
What is the primary advantage of entering into a forward contract?
Avoid price uncertainty and lock in a price for a transaction
What is the short forward obligated to do in a forward contract?
Sell the asset to the long forward
What is the future point in time when the transaction occurs known as in a forward contract?
Expiration date
What is the price at which the underlying asset is purchased called in a forward contract?
Forward price
What is the obligation of the long forward in a forward contract?
To purchase the underlying asset from the short forward at a future point in time
What is the obligation of the short forward in a forward contract?
To sell the underlying asset to the long forward at a future point in time
What is the underlying asset in a forward contract?
Stocks, bonds, currencies, and commodities
What is the future point in time when the transaction occurs known as in a forward contract?
Expiration date
What is the advantage of entering into a forward contract?
To avoid price uncertainty and lock in a price for a transaction
Study Notes
Forward Contracts
- In a forward contract, the counterparties are referred to as the long and the short.
Key Characteristics
- The future point in time when the transaction occurs is known as the settlement date or delivery date.
- The price at which the underlying asset is purchased is called the forward price or delivery price.
Advantages
- The primary advantage of entering into a forward contract is to hedge against price risks.
Obligations
- The long forward is obligated to buy the underlying asset at the forward price on the settlement date.
- The short forward is obligated to sell the underlying asset at the forward price on the settlement date.
Underlying Asset
- The underlying asset in a forward contract can be a commodity, currency, or financial instrument.
Test your knowledge of forward contracts with this quiz. Explore the key characteristics of forward contracts and understand the roles of counterparties in these financial agreements.
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