An equity forward contract is
A)a forward contract on LIBOR secured by a stock as collateral
B)a futures contract on a stock index that is not marked-to-market
C)a call option on a stock with greater downside risk than an ordinary call
D)a forward contract whose payoff is determined by a stock or index
E)none of the above

Question

Quizplus · Accepted Answer

An equity forward contract is a type of forward contract where the payoff is determined by the price of a specific stock or index. The buyer and seller agree to exchange a set amount of the underlying asset at a future date for a predetermined price. It is used as a tool for hedging against potential price movements in the underlying asset. Therefore, option A, B, and C are not accurate descriptions of an equity forward contract.

An Equity Forward Contract Is