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    Question

    Payoff to a short position in a forward contract where

    the forward price is Rs.30 and spot price at maturity is Rs.55 will be _____
    A Loss of 30 Correct Answer Incorrect Answer
    B Gain of 25 Correct Answer Incorrect Answer
    C Loss of 25 Correct Answer Incorrect Answer
    D Gain of 55 Correct Answer Incorrect Answer
    E Loss of 55 Correct Answer Incorrect Answer

    Solution

    For a short position, the person has agreed to sell the underlying asset at Rs.25. As such, if the spot price increases at maturity, there is a loss. Therefore, loss for the spot position is 30 – 55 = -25

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