Forward Contract Mechanics

This question tests your understanding of one of the most basic derivative contracts, which is a common topic in capital markets and sales and trading interviews. A strong answer should explain the role of the two counterparties, the idea of locking in terms today for a transaction that happens later, and the fact that the contract specifies the future date and the agreed price up front. Interviewers ask this because forwards are a simple way to check whether you understand how derivatives create exposure to future price movements and how trading agreements are structured.