CFA Level 1 Exam

3959 Questions

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Question No. 1

Pamela Burke is a cotton farmer in Texas. Her crop will be ready for harvest in three months, but Burke does not believe prices will remain at their current level. Burke contacts Brooke Anderson, a derivatives dealer, to negotiate a forward contract. Anderson agrees to be the counter party to a forward contract that will eliminate Burke's exposure to the price of cotton. The contract is structured as a nondeliverable forward with a contract price of S47. If the price of cotton is $49 in three months, which counter party will be exposed to the greater amount of credit risk and which counter party will make a payment?

Choose the correct option from the given list.
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