An expiration date payoff and profit diagram for forward positions illustrates
A) gains and losses are usually small.
B) the payoffs to both long and short positions in the forward contract are asymmetrical around the contract price.
C) forward contracts are zero-sum games.
D) long positions benefit from falling prices.
E) short positions benefit from rising prices.

Question

Quizplus · Accepted Answer

Forward contracts are zero-sum games, meaning the gain of one party is exactly balanced by the loss of another party. This is because the contract's value to one party is negative of its value to the other party, depending on the difference between the contract price and the market price at settlement.

An Expiration Date Payoff and Profit Diagram for Forward Positions