An agreement to buy or sell an asset at a set price on a future date, traded over the counter. Nothing is paid up front, so it carries counterparty risk.
Where you will meet it
Forward contract comes up in 19 learning outcome notes across the FRM syllabus.
A few of them:
Introduction to Derivatives FRM Part I · Financial markets and products
“Linear derivatives, namely forwards, futures and swaps, have payoffs that move one-for-one with the underlying, so they can be valued from the spot price and financing rates alone.”
How Do Firms Manage Financial Risk? FRM Part I · Foundations of risk management
“For a commodity price risk, a producer fearing a fall sells futures or forwards, or buys puts.”
Calculating and Applying VaR FRM Part I · Valuation and risk models
“Cash equities, currency positions, futures and forwards are linear.”
Credit Risk FRM Part II · Credit risk measurement and management
“Forwards and swaps can change sign and so carry two-sided risk.”
GARP does not endorse, promote, review, or warrant the accuracy of the products or services offered by Charta Learning, nor does it endorse any pass rates claimed by Charta Learning. Further, GARP is not responsible for any fees or costs paid by the user to Charta Learning. FRM® and GARP® are registered trademarks owned by the Global Association of Risk Professionals, Inc. The questions, explanations and study notes are written for this product and are not GARP curriculum material.