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Which of the following is true about a long forward contract
A.The contract becomes more valuable as the price of the asset declines
B.The contract becomes more valuable as the price of the asset rises
C.The contract is worth zero if the price of the asset declines after the contract has been entered into
D.The contract is worth zero if the price of the asset rises after the contract has been entered into

Answer: B
A long forward contract is an agreement to buy the asset at a predetermined price. The contract becomes more attractive as the market price of the asset rises. The contract is only worth zero when the predetermined price in the forward contract equals the current forward price (as it usually does at the beginning of the contract).

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Flashcard info:

Author: CoboCards-User

Main topic: Finance & Investment

Topic: Derivatives

Published: 27.10.2015

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