What is a Forward Contract? - Definition & Examples


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question 1 of 3

A contract made on a delivery basis will require the seller to supply _____ to the buyer on the settlement date.

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1. Suppose Party A and Party B enter into a forward contract in which Party A sells 100 cows to Party B on a cash settlement basis for $100. If the market price of 100 cows on the settlement date is $105, what does Party B owe Party A on the settlement date?

2. When an investor enters into a contract to reduce the risk of loss in another transaction, this is called _____.

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About This Quiz & Worksheet

Take advantage of the quiz and worksheet, seeing what you know about forward contracts. You need to know what these contracts are and be familiar with hedging for the quiz.

Quiz & Worksheet Goals

You can see how much you know about:

  • A requirement of the seller in a contract made on a delivery basis
  • The meaning of a forward contract
  • A term that references a situation wherein an investor enters a contract to reduce the risk of loss in another transaction

Skills Practiced

  • Information recall - access the knowledge you have gained about the purpose of hedging with forward contracts
  • Reading comprehension - ensure that you draw the most important information from the lesson on forward contracts
  • Interpreting information - verify that you can read information about how forward contracts work and interpret it correctly

Additional Learning

See what more you can learn about these contracts by accessing the lesson called What is a Forward Contract? - Definition & Examples. This lesson allows you to:

  • Define speculate
  • Examine the benefits of using forward contracts
  • Review forward contract examples