The value of a futures contract between the times when the position is marked-to
ID: 2790542 • Letter: T
Question
The value of a futures contract between the times when the position is marked-to-market is:
equal to the difference between the current market price of the contract and the most recent mark-to-market price.
never less than the value of a forward contract that will expire on the same date at the same forward price.
the accumulated gain or loss since the initiation of the futures position.
the same as the contract current price.
A.equal to the difference between the current market price of the contract and the most recent mark-to-market price.
B.never less than the value of a forward contract that will expire on the same date at the same forward price.
C.the accumulated gain or loss since the initiation of the futures position.
D.the same as the contract current price.
Explanation / Answer
Value of future contract is the contract size multiplied by the spot price per unit.
As in future contract, forward contract is also a contract between two parties to exchange a particular asset at specified price at specified time except that future contract is exchange traded and market to market daily whereas forward contract is privately held and settlement occurs at the end of the contract.
When price at maturity and time to maturity is same for forward and future conract for same asset with same conract size, then value of the future and forward contract should also be same.
Thus value of future contract will never be less than the value of the forward contract with same maturity and price.
Thus option B is correct answer.
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