CFA Practice Question

There are 206 practice questions for this study session.

CFA Practice Question

The price of a futures contract will equal the price of an otherwise equivalent forward contract if ______

I. it is one day prior to expiration.
II. it is the expiration day.
III. it is the contract creation day.
A. I and II
B. I, II and III
C. I and III
Explanation: The price of a futures contract will equal the price of an otherwise equivalent forward contract one day prior to expiration. At this time point both the futures and forward contracts have one day to go. At expiration they will both settle. Therefore these contracts are the same. At the contract initiation date, the value of futures and forward contracts are both 0, and their prices should be equal to each other.

User Contributed Comments 5

User Comment
mbuechs2 A couple of issues in this question:
- it neglects credit risk
- it assumes that no direct relationship between asset prices and interest rates

Why should the value (not price) be exactly equal on the creation date? Are you expecting the market not to move and hence have a preference for the one or the other?
bmeisner If it was a contract on gold the futures would be greater than forwards because of correlation between interest rates and futures prices. I think it only holds at expiration.
ramdabom But futures are marked to market each day. So wouldn't they only equal at initiation?
dinalapan what about any other day?
chloebchau need to review, i thought one day prior the prices are different for both?
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