CFA Level I · CFA Level I Exam · Forward Commitment and Contingent Claim Features and Instruments
A fund manager enters a long forward contract to buy 1,000 units of an asset at 50 per unit. At expiry, the spot price is 56 per unit. The payoff to the long position at expiry is closest to:
The payoff to the long position is about 6,000. The long buys at 50 and the asset is worth 56, so the gain is (56 - 50) multiplied by 1,000 units. A negative 6,000 would be the short position's result.
- A-6,000
- B0
- C6,000Correct
Explanation
Long forward payoff = (spot at expiry - forward price) x units = (56 - 50) x 1,000 = 6,000. The -6,000 option has the sign reversed, which would be the short's payoff.
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