Certified Management Accountant Practice Exam 2025 – The Comprehensive All-in-One Guide to Exam Success!

In a forward contract, the party that agrees to buy the asset holds the long position. This is because the long position is associated with the obligation to purchase the underlying asset at a specified future date for a predetermined price. The buyer, by entering into the contract, is anticipating that the price of the asset will rise over time, thereby benefitting from the difference between the agreed-upon forward price and the market price when the contract matures.

In contrast, the seller of the asset takes on the short position, which is the obligation to deliver the asset at the contract's expiration. In this arrangement, the seller hopes that the asset's price will not exceed the forward price at the time of delivery, so they will not incur a loss.

Understanding the roles of the parties in a forward contract highlights the fundamental nature of these agreements, which involves the buyer expecting favorable price movements, making the buyer the holder of the long position.