Practice Question Set: Pricing Financial Forwards and Futures

Topic Progress:

Chapter 10. Pricing Financial Forwards and Futures Practice Question set contains 27 pages covering the following learning objectives:

* Differentiate between investment and consumption assets.

* Define short-selling and calculate the net profit of a short sale of a dividend-paying stock.

* Describe the differences between forward and futures contracts and explain the relationship between forward and spot prices.

* Calculate the forward price given the underlying asset’s spot price, and describe an arbitrage argument between spot and forward prices.

* Distinguish between the forward price and the value of a forward contract.

* Calculate the value of a forward contract on a financial asset that does or does not provide income or yield.

* Explain the relationship between forward and futures prices.

* Calculate a forward foreign exchange rate using the interest rate parity relationship.

* Calculate the value of a stock index futures contract and explain the concept of index arbitrage.

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