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Questions and Answers

In a forward contract, the counterparties are referred to as:

Lender and borrower
Buyer and seller
Holder and issuer
Long position and short position (correct)

What is the future point in time when the transaction occurs known as in a forward contract?

Delivery date
Expiration date (correct)
Maturity date
Settlement date

What is the price at which the underlying asset is purchased called in a forward contract?

Spot price
Forward price (correct)
Strike price
Market price

What is the advantage of entering into a forward contract?

To avoid price uncertainty and lock in a price for a transaction (B) Signup and view all the answers

What is the underlying asset in a forward contract?

Stocks, bonds, currencies, and commodities (A) Signup and view all the answers

What is the advantage of entering into a forward contract?

Avoiding price uncertainty and locking in a price for a transaction (E) Signup and view all the answers

What is the future point in time when the transaction occurs known as in a forward contract?

Expiration date (B) Signup and view all the answers

What is the price at which the underlying asset is purchased called in a forward contract?

Forward price (B) Signup and view all the answers

In a forward contract, what are the counterparties referred to as?

Long position and short position (E) Signup and view all the answers

What is the underlying asset in a forward contract?

Stocks, bonds, currencies, and commodities (E) Signup and view all the answers

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 (D) Signup and view all the answers

What is the primary advantage of entering into a forward contract?

Avoid price uncertainty and lock in a price for a transaction (B) Signup and view all the answers

What is the short forward obligated to do in a forward contract?

Sell the asset to the long forward (C) Signup and view all the answers

What is the future point in time when the transaction occurs known as in a forward contract?

Expiration date (B) Signup and view all the answers

What is the price at which the underlying asset is purchased called in a forward contract?

Forward price (C) Signup and view all the answers

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 (A) Signup and view all the answers

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 (D) Signup and view all the answers

What is the underlying asset in a forward contract?

Stocks, bonds, currencies, and commodities (D) Signup and view all the answers

What is the future point in time when the transaction occurs known as in a forward contract?

Expiration date (C) Signup and view all the answers

What is the advantage of entering into a forward contract?

To avoid price uncertainty and lock in a price for a transaction (A) Signup and view all the answers

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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.

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Test your knowledge of forward contracts with this quiz. Explore the key charact...

Choose a study mode

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Questions and Answers

In a forward contract, the counterparties are referred to as:

What is the future point in time when the transaction occurs known as in a forward contract?

What is the price at which the underlying asset is purchased called in a forward contract?

What is the advantage of entering into a forward contract?

What is the underlying asset in a forward contract?

What is the advantage of entering into a forward contract?

What is the future point in time when the transaction occurs known as in a forward contract?

What is the price at which the underlying asset is purchased called in a forward contract?

In a forward contract, what are the counterparties referred to as?

What is the underlying asset in a forward contract?

What is the key characteristic of the long forward in a forward contract?

What is the primary advantage of entering into a forward contract?

What is the short forward obligated to do in a forward contract?

What is the future point in time when the transaction occurs known as in a forward contract?

What is the price at which the underlying asset is purchased called in a forward contract?

What is the obligation of the long forward in a forward contract?

What is the obligation of the short forward in a forward contract?

What is the underlying asset in a forward contract?

What is the future point in time when the transaction occurs known as in a forward contract?

What is the advantage of entering into a forward contract?

Study Notes

Forward Contracts

Key Characteristics

Advantages

Obligations

Underlying Asset

Studying That Suits You

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