CFA Practice Question

There are 206 practice questions for this study session.

CFA Practice Question

To create a synthetic forward contract, we should ______.

A. long a call, short a put, and long a risk-free bond
B. short a call, long a put, and long a risk-free bond
C. long a call, short a put, and long or short a risk-free bond
Correct Answer: C

The synthetic forward contract would have an initial value of c0 - p0 + [X - F(0, T)]/(1 + r)T. If X - F(0, T) > 0, we would long the bond; if X - F(0, T) < 0, we would short the bond. If X = F(0, T), then the bond is out of the picture.

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