Question

    Which of the following is not an objective of a forward

    contract?
    A Lock a future price for a commodity Correct Answer Incorrect Answer
    B Reduce risk of loss due to adverse movement in price of an asset in future Correct Answer Incorrect Answer
    C Lower transactions costs for future Correct Answer Incorrect Answer
    D Help in better price discovery of the underlying asset Correct Answer Incorrect Answer
    E Earn profit on an underlying asset Correct Answer Incorrect Answer

    Solution

    A forward contract is an agreement between two parties to trade a specific quantity of an asset for a pre-specified price at a specific date in the future. The primary objective of forward contracts is  to manage the risks  associated with fluctuating prices of the underlying asset. The objective is not to make profit but to minimise loss.

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