Introduction to Forwards Flashcards
1
Q
What is a forward contract?
A
An agreement between two parties, a buyer and a seller, to exchange an asset on a specified date and at a specified price. In a standard forward contract, no money is initially exchanged. Money is only exchanged at expiration. On the expiration date of the contract, the buyer is obligated to buy the underlying asset at the forward price, and the seller is obligated to sell at the forward price. A forward is a derivative because the value of the agreement depends on the underlying asset.
Long Forward: Obligated to Buy
Short Forward: Obligated to Sell
