A forward contract is struck at a forward price of $40.At maturity the spot price of the asset is $45.The short forward position earns the following payoff:
A)$5
B)-$5
C)$45
D)-$45

Question

Quizplus · Accepted Answer

The short forward position has agreed to sell the asset at a price of $40 in the forward contract. However, at maturity, the spot price of the asset is $45, which means the short position has to sell the asset at a lower price than the market price. Therefore, the short position incurs a loss of $5, which is the payoff for the short forward position. The answer is option B, which indicates a payoff of -$5.

A Forward Contract Is Struck at a Forward Price of $40.At