Deck 2 – Forward vs Contingent Claims

In a plain interest rate swap, what is the net cash flow at a settlement date?

$(\text{Floating rate}-\text{Fixed rate})\times \text{Notional}\times \text{Period fraction}$

How do forward commitments differ from contingent claims in terms of obligation at expiration?

Forward commitments obligate both parties; contingent claims pay only if triggered.

Is a forward contract a forward commitment or a contingent claim, and why?

Forward commitment; both parties must transact at expiration.

Is an option a forward commitment or a contingent claim, and why?

Contingent claim; exercise depends on whether it is beneficial.