The Main Difference Between a Forward Contract and a Cash

question 45

Multiple Choice

The main difference between a forward contract and a cash transaction is:

• A) only the cash transaction creates an obligation to perform.
• B) a forward is performed at a later date while the cash transaction is performed immediately.
• C) only one involves a deliverable instrument.
• D) neither allows for hedging.

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Definitions:

Maximum Loss

The greatest amount of loss an investor or trader is potentially exposed to in an investment or trade.

Call Premium

The amount a call option buyer pays to the seller over and above the option's intrinsic value, which reflects the time value or speculative premium of the option.

Put Premium

Put premium refers to the price that an investor must pay to purchase a put option, which grants the right to sell a specified quantity of a security at a set strike price up to the expiration date.

Callable Bond

A bond that the issuer may repurchase at a given call price in some specified period.