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Answer: If the riskfree interest rate is constant and the rate curve is flat; and if the counterparty (credit) risk on the forward contract is virtually zero
Forward and futures prices are equal when there is **no meaningful difference in the effect of daily settlement**, which happens when interest rates are **constant** (so reinvestment effects do not differ) and the forward has **negligible credit risk**. - If rates are constant/flat, the futures and forward pricing relationship is the same. - If the forward has virtually zero counterparty risk, the forward is directly comparable to the futures contract. So the best answer is **D**.
Author: Manit Arora
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Q-164.5. Under what condition should the price of a FORWARD contract equal the price of a FUTURE contract, if the commodity and specifics of the contracts (e.g., maturity) are otherwise identical? (Best answer)
A
If the financing cost (r), storage cost (u), income (q) and convenience yield (y) are identical
B
If the counterparty (credit) risk on the forward contract is virtually zero
C
If the riskfree interest rate is constant and the rate curve is flat
D
If the riskfree interest rate is constant and the rate curve is flat; and if the counterparty (credit) risk on the forward contract is virtually zero
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