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FINC 306 Key PASSED Exam Questions and CORRECT Answers
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What is a Forward Contract? ∙A forward contract is a binding agreement to buy/sell an underlying asset in the future at a price set today Describe the meaning of a forward price, delivery date and payoff of a forward contract ∙The forward price is the price at which two parties agree today to transact/deliver in the future ∙The delivery date is the time at which the contract is settled ∙The payoff of a forward contract is the value created by the position at expiration Payoff function of forward contracts ∙Long forward: Vt = St - Fot ∙Short forward: Vt = Fot - St
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