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:

Oligopoly Markets

A market structure characterized by a small number of large firms controlling the majority of the market share, leading to limited competition.

Nash Equilibrium

A concept within game theory where no player can benefit by changing strategies while the other players keep theirs unchanged.

Oligopoly Market

A market structure characterized by a small number of firms dominating the market, leading to limited competition and potentially strategic interactions among the firms.

Dominant Strategy

A strategic option that yields the best outcome for a player, irrespective of what strategies other players adopt.