CFA Level I · CFA Level I Exam · Forward Commitment and Contingent Claim Features and Instruments
Which of the following instruments is best described as a forward commitment?
A futures contract is a forward commitment because both parties must buy or sell the underlying at a price fixed today on a future date. Options and credit default swaps are contingent claims, where the payoff depends on exercise or on a credit event.
- AA put option on a stock
- BA futures contract on a commodityCorrect
- CA credit default swap payable only on default
Explanation
A forward commitment obliges both parties to transact at a set price on a future date. Futures, forwards and swaps fall in this group. Options and credit default swaps are contingent claims, since their payoffs depend on an event or on the holder's choice.
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