A Forward Contract Is Struck at a Forward Price of $40.At

question 14

Multiple Choice

A forward contract is struck at a forward price of $40.At maturity the spot price of the asset is $45.The short forward position earns the following payoff:

• A)$5
• B)-$5
• C)$45
• D)-$45

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Definitions:

Monetary Policy

The process by which the central bank or monetary authority of a country controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.

Elastic Currency

A currency system that can expand or contract in supply to accommodate economic needs and stabilize the economy.

Secondary Reserves

Liquid assets held by financial institutions that are not used for primary obligations but can be quickly converted to cash for emergency needs.

U.S. Government Securities

Financial instruments issued by the United States Department of the Treasury to finance federal government's expenditures.