If the closing spot rate is $0.5800/C$ at the expiration of a forward contract, the party that has sold C$ at a forward rate of $0.5754/C$ has an incentive to default.

Question

Quizplus · Accepted Answer

The party that has sold C$ at a forward rate of $0.5754/C$ has an incentive to default because they can buy C$ at the spot rate of $0.5800/C$ and deliver it to the buyer at the forward rate of $0.5754/C$, making a profit of $0.0046/C$.

If the Closing Spot Rate Is $0