Which of the following statements is true?
A)In a forward contract the buyer and seller agree on a price at time 0 and the bonds are delivered by the seller to the buyer 'at that time'.
B)In a forward contract the buyer and seller agree on a price at time 0 and the bonds are delivered by the seller at a future point in time, for example, after three months.
C)In a forward contract the buyer and seller enter into a contract at time 0, the contract is marked to market on a daily basis, and the buyer pays the forward price quoted at expiry.
D)None of the listed options are correct.

Question

Quizplus · Accepted Answer

In a forward contract, the buyer and seller agree on a price at time 0 but the bonds are delivered by the seller at a future point in time, which could be after several months or even years. Option B correctly describes this feature of a forward contract. Option A is incorrect because the delivery of bonds does not happen immediately at time 0. Option C is incorrect because the contract is not marked to market on a daily basis, and the buyer pays the agreed-upon forward price at the time of delivery. Option D is incorrect because option B is true.

Which of the Following Statements Is True