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Today (t= 0) one party goes short a futures contract and another sells a forward contract...

Today (t= 0) one party goes short a futures contract and another sells a forward contract on the same commodity.

The prices at t = 0, 1, 2, 3 where 3 = T = maturity are:

   0F3 = 100      1F3 = 140      2F3 = 110      0F3 = 100   

Assume that both contracts are held till maturity.

Assume the commodity delivered at T = 3 is taken from previously held inventory.

Assume that initial margin is met with T-Bills.

Consider any appropriate daily marking-to-the-market transfers and assume that these transfers have a positive time value of money associated with them.

Which of the parties would have been better off in this example?

the trader in the futures market     

need to know more information to answer this question

there is no difference

the trader in the forward market

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Expert Solution

jeff jeffy answered 1 year ago
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