- CFA Exams
- CFA Exam: Level II 2021
- Study Session 12. Fixed Income (1)
- Reading 32. The Term Structure and Interest Rate Dynamics
- Subject 3. Yield Curve Movement, Forward Curve and Rolling Down the Yield Curve
CFA Practice Question
If you expect the future spot rate to be lower than the current forward rate, the forward contract value is expected to:
B. decrease.
C. remain the same.
A. increase.
B. decrease.
C. remain the same.
Correct Answer: A
The market is expected to discount the forward contract using a higher rate, causing the forward contract to be undervalued.
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