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
• c) fluctuate in line with the Spot Price
  No. Remember that the contract price is equal to the Forward Price 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.
  d) fluctuate in line with the Forward Price.

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