A forward contract price will increase if:
A. future spot rates evolve as predicted by current forward rates.
B. future spot rates are lower than what is predicted by current forward
rates.
C. future spot rates are higher than what is predicted by current forward
rates
What do you think?
Why?
based on forward contract price formula: DF (b) = DF (a) * F (a,b-a)
DF(a) is the same, so F (a,b-a) increases meaning DF (b) increase → future sport rate decrease
so answer is B.
Is my understanding correct?