estion 2 In a forward contract yet answered Soloct one ked out of 1.00O a The bu

Question

estion 2 In a forward contract yet answered Soloct one ked out of 1.00O a The buyer has the righit to buy and the sollor the obliation to soll Fag queston Ob Nobody is obgatod O c The buyor has the obligation to buy but the sefer has the right to sel and may proler nt to do so O d Tho buyer has tho obligation to buy and the soler the obligalion to seli uestion 3 To be short in future contracts meens t yet answered Select one ned our or 1.00 O a You buy fulare contracts Flag question Ob You are invosog ittemone OC. You are betting on anse in asset price O d You are being on a drop n t pric uestion 4 Imagine that you are the seller of a forward contract. At the maturity date you wart to compare the Spot Price and the Fonward Price sgned in the contract to check what happened t yet anwered arked out of 1 0o Solect o in case of not signing the torward contbact What do you need to take into account regarding to the contract? O a Itf Spot Price is higher ihan the torvard Price you will not deliver the undertying ascet O b. None of thom O c Peace of mind Flag question d It Spot Price ts lowor than the Forvard Price you will ask for the difetence to the buyer

Explanation / Answer

Answer :

Part 1: (d). The buyer has the obligation to buy and the seller has obligation to sell.
It's the obligation of both the parties to perform the contract.

Part 2: (d). You are betting on a drop in the asset price.
Since we take short (sell) position, we expect for a decline in price. "Buy at low, sell at high"

Part 3: (d). If spot price is lower than the forward you will ask for the difference to the buyer.

Lets take an example,

As we are the seller of future contract, we make a contact of selling share @ $ 1000 on a particular future date. Now, if on maturity Spot rate is $ 950 ,

on netting off position, we have profit of $ 50.

Hence, if spot price is lower than forward price, we will ask for difference to the buyer.

  

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