Explanation:
The value of the forward contract to a party holding a short position can be calculated by multiplying the value to the long party by -1.
Option A is incorrect. The forward contract most likely has a value at expiration, and this value is equal to the difference between the forward price and the underlying current spot price.
Option C is incorrect. The value of the forward contract to the party with a short position is positive if the futures price exceeds the spot price. This party, with a short position, has agreed to deliver the obligation for a price, which is higher than what would have been received if it were sold today in the market.
Option D is incorrect. The value of the forward contract is not either the full amount of the contract or zero; rather, it is the value of the long position multiplied by -1.
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Q.34 Which of the following statements is correct regarding the value of a forward contract to a short party at expiration? The value of the forward contract is:
A
Equal to zero
B
Equal to the value of the long party multiplied by -1
C
Positive if the spot price of the underlying exceeds the forward price
D
Either the full amount of the contract or zero
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