Which One of the Following Is True Regarding Forward Contracts

question 35

Multiple Choice

Which one of the following is true regarding forward contracts?

• A) The upfront costs to enter a forward contract can be significant.
• B) If a buyer of a forward contract earns a $200 profit, then the seller will also profit by $200.
• C) The buyer wins when market prices are less than the forward price.
• D) The payoff profile for the buyer of a forward contract is an upward sloping linear function.
• E) If the seller of a forward contract earns a profit, then the buyer has neither a profit nor a loss.

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Definitions:

Concurrent Validity

Concurrent validity is the extent to which test scores or measurements are correlated with other measures or outcomes that are theoretically related and taken at the same time.

Predictive Validity

How well a result from a test or scale forecasts subsequent performance in a connected area.

Face Validity

The degree to which a test or measure appears effectively to assess what it is supposed to assess, based on casual inspection.

Content Validity

An indicator of construct validity of a measure in which the content of the measure is compared to the universe of content that defines the construct.