A forward contract is described by:
A) agreeing today to buy a product at a later date at a price to be set in the future.
B) agreeing today to buy a product today at its current price.
C) agreeing today to buy a product at a later date at a price set today.
D) agreeing today to buy a product if and only if its price rises above the exercise price today at its current price.
E) None of these.

Question

Quizplus · Accepted Answer

A forward contract is an agreement where two parties agree to buy or sell a product on a future date at a price set today. Both parties are obligated to fulfill the contract at the maturity date. Option A is incorrect as the price is agreed upon today rather than in the future. Option B is incorrect as the contract is for a future date, not today. Option D is incorrect as it describes an options contract rather than a forward contract. Option E is incorrect as at least one of the choices is correct.

A Forward Contract Is Described By