At the beginning of March 2012, Brian told Chris that he is thinking of buying some shares of Ford motors from him at the end of the month at $12/share. Chris agreed to this proposal and wrote a contract to sell shares to Brian at a price of $12/share. The current market price is $10/share. At the end of the month, the share price was $11/share, so Brian chose not to buy the shares from Chris. This is an example of:
A) a forward contract.
B) an option.
C) a future contract.
D) a swap.

Question

Quizplus · Accepted Answer

This scenario is an example of an option, specifically a call option, where Brian has the right but not the obligation to buy shares at a predetermined price ($12/share) from Chris. Since the market price at the end of the month was $11, which is less than the agreed price, Brian chose not to exercise his option to buy.

At the Beginning of March 2012, Brian Told Chris That