Assume you are looking at a payoff profile for a forward contract on oil. Which one of these statements correctly describes what you are seeing?
A) From the buyer's perspective, the payoff profile is downward sloping.
B) From both the buyer's and the seller's perspectives, the payoff profile is upward sloping.
C) The vertical axis depicts changes in the price of oil.
D) From the seller's perspective, the payoff profile is downward sloping.
E) The horizontal axis represents the changes in contract value.

Question

Quizplus · Accepted Answer

In a forward contract, the seller benefits when the price of the underlying asset decreases, resulting in a downward sloping payoff profile from the seller's perspective.

Assume You Are Looking at a Payoff Profile for a Forward