Forward price

The price agreed today for delivery at a future date, set so the contract is worth nothing at the start. It follows from the cost of carrying the asset to delivery and is not a forecast of the spot price.

Where you will meet it

Forward price appears in 8 learning outcomes on the CFA syllabus. A few of them:

• Show how the absence of arbitrage fixes a forward price
  CFA Level I · Derivatives

  “Buying the asset today with borrowed money and holding it to the delivery date produces exactly what the forward delivers, so the forward price must equal the spot price compounded at the financing rate, adjusted for anything the asset pays or costs while held.”

• Explain the pricing of equity forwards and futures, and work out their no-arbitrage value and say what it means
  CFA Level II · Derivatives and Risk Management

  “An equity forward price is the cost of buying the share now and carrying it to delivery, less what it pays you meanwhile.”

• Illustrate how currency forwards, futures and swaps alter the risk and return of a portfolio
  CFA Level III · Derivatives and Risk Management

  “Covered interest parity sets the forward price, so hedging a currency whose interest rates exceed the base currency's gives up that yield gap, while hedging a lower-yielding one earns it.”

• Explain carrying costs and how they shift the forward price
  CFA Level I · Derivatives

  “The forward price equals the spot price compounded at the risk-free rate, adjusted for anything the underlying costs or yields while it is held.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with F · Glossary