2. As in the first problem, on March 14, 2024 the forward price of gold with maturity April 15, 2024 is $1,885. Suppose we sign a contract to buy one unit on March 15, 2024, and on March 16, 2024 the forward price of gold with maturity April 15, 2024 becomes $1,900.
What happens on March 16, 2024?
a. We have to pay the difference $15 to the company who sold us the forwards contract.
b. We have the option to pay the difference $15 but we do not have to do it.
c. We don’t have to make or receive any payment.
d. We receive $15 from the company who sold us the contract.
On March 16, 2024, if the forward price of gold with maturity April 15, 2024 increases from $1,885 to $1,900, no actual payment would be made between the parties involved in the forward contract just because of the change in the forward price. The contract is binding, and neither party is required to make any additional payments based on the change in the market price. Therefore, the correct answer is:
c. We don’t have to make or receive any payment.
