[Verse 1] When a forward contract starts its life today Both parties shake hands in a balanced way No money changes hands at the start Zero value is the key to remember by heart The future price is locked and set But today's value? Zero's a safe bet [Chorus] Forward value starts at zero, that's the rule Zero at initiation, basic finance school But as time goes by and markets move around The value changes, up or down it's found Spot price rises, long position gains Spot price falls, the short side reigns [Verse 2] As days go by and markets shift their mood The underlying price creates the feud If spot price climbs above the forward rate The buyer's smiling, their position's great The seller's worried as their value drops Like a seesaw that never stops [Chorus] Forward value starts at zero, that's the rule Zero at initiation, basic finance school But as time goes by and markets move around The value changes, up or down it's found Spot price rises, long position gains Spot price falls, the short side reigns [Bridge] Value equals spot minus forward price Discounted back, that's our device Present value of the difference today Shows how much the contract's worth in play Risk-free rate helps us discount back Time value's never off the track [Verse 3] At expiration day when contracts end The forward value meets its final trend Spot price minus forward price today No discounting needed, straight away The journey's done from zero to the close That's how forward valuation goes [Chorus] Forward value starts at zero, that's the rule Zero at initiation, basic finance school But as time goes by and markets move around The value changes, up or down it's found Spot price rises, long position gains Spot price falls, the short side reigns [Outro] From zero start to final settlement day Forward contracts show us the way Market forces drive the value dance Understanding gives you the advantage
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