Chapter 01 · Section 1.1

Example - Gold

Suppose on June 1st, gold prices are as follows:

for August 15 delivery: Forward Price:   $ 420/oz
                        Spot Price:      $ 410/oz

If a contract to buy (or to sell) a certain amount of Gold for delivery on August 15 is made on June 1st, the Contract Price of this forward contract will:

a) be equal to the current (June 1) Spot Price
• b) be equal to the current Forward Price
  Yes. The Forward and Contract Price will only be the same on the day you enter into a forward contract. The contract price is fixed, whereas the forward price will be influenced by changes in the Spot Price. Continue
  c) fluctuate in line with the Spot Price
  d) fluctuate in line with the Forward Price.

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