Question #47
Reading: Reading 30 Pricing and Valuation of Forward Commitments
PDF File: Reading 30 Pricing and Valuation of Forward Commitments.pdf
Page: 19
Status: Unattempted
Correct Answer: A
Question
The price of a forward contract:
Answer Choices:
A. depends on forward interest rates
B. is determined at contract initiation
C. changes over the term of the contract
Explanation
The price of a forward contract is established at the initiation of the contract and is
expressed in different terms, depending on the underlying assets. It is the price that
makes the contract value zero, and depends on current interest rates through the cost-of-
carry calculation.