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:

Severing

The act of legally separating or dividing property rights, often in the context of joint tenancies turning them into tenancies in common.

Adverse Possession

The process by which one can legally claim ownership of property by occupying it for a certain period, under certain conditions, without the permission of the owner.

Life Tenant

An individual who has the right to use or occupy property during their lifetime, but cannot sell or transfer the property.

Fee Simple

The most extensive interest in real estate available, granting the owner full possession and control, subject only to governmental restrictions.