A Short Forward Contract That Was Negotiated Some Time Ago

question 4

Multiple Choice

A short forward contract that was negotiated some time ago will expire in three months and has a delivery price of $40.The current forward price for three-month forward contract is $42.The three month risk-free interest rate (with continuous compounding) is 8%.What is the value of the short forward contract?

• A) +$2.00
• B) −$2.00
• C) +$1.96
• D) −$1.96

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Definitions:

Powdered Preservative

A substance in powder form added to foods, pharmaceuticals, and other products to prevent decomposition by microbial growth or by undesirable chemical changes.

Collection Container

A device or vessel used to gather and hold substances, often for laboratory analysis or medical purposes.

Technical Terminology

Specialized vocabulary used in specific fields or professions to describe precise processes, tools, and concepts.

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The procedure during which a catheter is inserted into a vessel, an organ, or a body cavity.