Why Enter into a Forward Contract When NPV = 0?

1. To reduce price risk to one party
2. To benefit from expectation of price movement different from market's
3. To create synthetic assets

Default risk in Forwards

• Forwards – low transaction cost but high performance risk (= credit risk)
• Participating in the forward market requires an access to credit line with substantial amount. Therefore, forwards markets are for institutions with access to credit line as a regular part of their business, such as large corporations and governments.