Forward contracts are contracts to buy or sell a specified amount of an asset at a specified, fixed price with delivery at a specified future point in time.Which of the following is true about these contracts?
A)The party that agrees to buy the asset is said to be in a short position.
B)The party that agrees to sell the asset is said to be in a long position.
C)The specified, fixed price in the contract is known as the forward rate.
D)A forward contract requires an initial deposit of funds with the transacting broker.

Question

Forward contracts are contracts to buy or sell a specified amount of an asset at a specified, fixed price with delivery at a specified future point in time.Which of the following is true about these contracts?
A)​The party that agrees to buy the asset is said to be in a short position.
B)​The party that agrees to sell the asset is said to be in a long position.
C)​The specified, fixed price in the contract is known as the forward rate.
D)​A forward contract requires an initial deposit of funds with the transacting broker.

Quizplus · Accepted Answer

The specified, fixed price in a forward contract is indeed known as the forward rate. This rate is agreed upon by the parties at the contract's inception for the future purchase or sale of an asset. Choices A and B are incorrect because the party agreeing to buy is in a long position, and the party agreeing to sell is in a short position, respectively. Choice D is incorrect because forward contracts typically do not require an initial deposit of funds with a broker, distinguishing them from futures contracts which often do require such deposits.

Forward Contracts Are Contracts to Buy or Sell a Specified