Financial Risk Manager Part 1

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Explanation:

If the commodity price stays at $20 at maturity:

Borrowing to buy spot leads to a negative net profit because the loan must be repaid with interest.
Long call option has payoff of zero at expiry when $S(T)=K=20$ , but the option premium makes the net profit negative.
Long forward with delivery price 20 has payoff $S(T)-K = 20-20 = 0$ , so its net profit is the highest among the choices.

Therefore, the long forward produces the highest future net profit.

Explanation:

If the commodity price stays at $20 at maturity:

Borrowing to buy spot leads to a negative net profit because the loan must be repaid with interest.
Long call option has payoff of zero at expiry when $S(T)=K=20$ , but the option premium makes the net profit negative.
Long forward with delivery price 20 has payoff $S(T)-K = 20-20 = 0$ , so its net profit is the highest among the choices.

Therefore, the long forward produces the highest future net profit.

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MManit

Last updated: April 18, 2026 at 11:32

Borrow at the risk-free rate in order to purchase spot commodity

50.0%

Buy (long) call options with strike at $20; i.e., K = 20.

0.0%

Long forward with delivery price at $20; i.e., K = 20

50.0%

Each of the above have identical future (net) profits