{"id":3683,"date":"2019-09-14T17:33:00","date_gmt":"2019-09-14T17:33:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=3683"},"modified":"2026-03-08T11:42:44","modified_gmt":"2026-03-08T11:42:44","slug":"forward-commitments-versus-contingent-claims","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/derivatives\/forward-commitments-versus-contingent-claims\/","title":{"rendered":"Forward Commitments versus Contingent Claims"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"Which statement best describes the key difference between a forward commitment and a contingent claim?\",\n    \"text\": \"Which statement best describes the key difference between a forward commitment and a contingent claim?\\n\\nA. A forward commitment allows the holder to choose whether to transact whereas a contingent claim is always enforceable\\n\\nB. A forward commitment creates an obligation to transact whereas a contingent claim allows for transacting to be optional\\n\\nC. A forward commitment is enforceable and a party must transact whereas a contingent claim allows the seller to choose whether to enforce the transaction\",\n    \"answerCount\": 1,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is B. A forward commitment creates an obligation between the transacting parties to complete the transaction at a future date. In contrast, a contingent claim gives the holder the right, but not the obligation, to transact at a future date if certain conditions are met.\"\n    }\n  }\n}\n<\/script>\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Derivative Markets and Instruments (2025 Level I CFA\u00ae Exam \u2013 Derivatives \u2013 Module 1)\",\n  \"description\": \"This video covers Derivative Markets and Instruments, including forward commitments, contingent claims, and key derivative contracts like forwards, futures, options, swaps, and credit derivatives. It also explains option valuation, arbitrage, and the role of derivatives in market efficiency, along with associated risks and controversies.\",\n  \"uploadDate\": \"2022-06-28T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/img.youtube.com\/vi\/00HzgJftwpU\/maxresdefault.jpg\",\n  \"contentUrl\": \"https:\/\/youtu.be\/00HzgJftwpU\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/00HzgJftwpU\",\n  \"duration\": \"PT57M12S\"\n}\n<\/script>\n\n\n\n<iframe loading=\"lazy\" width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/00HzgJftwpU?si=YMYDuFplKvBDdH75\" title=\"YouTube video player\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n\n\n<p>Derivatives typically fall into one of two classifications, either forward commitments or contingent claims. The primary difference between the two is around obligations. Forward commitments carry an obligation to transact, whereas contingent claims confer the right to transact, but not the obligation.<\/p>\n<h3><strong>Forward Commitments<\/strong><\/h3>\n<p>Forward commitments are contracts entered into between two parties that require both parties to transact in the future at a pre-specified price known as the forward price. The parties and the identity and quantity of the underlying are specified. Also specified are the date of the future transaction (expiration) and the nature of the settlement. The parties have to transact; they are obligated to do so. In the event of non-performance, because of the obligation of the forward contract, a legal remedy is possible to enforce the obligation.<\/p>\n<p>The payoff profiles of forward commitments are linear in nature and move upwards or downwards in direct relation to the price of the underlying asset. Forward commitments include futures contracts and forwards contracts.<\/p>\n<h3><strong>Contingent Claims<\/strong><\/h3>\n<p>A contingent claim is a type of option where the payoff profile is dependent on the outcome of the underlying asset. This is not dissimilar to a forward commitment, however with a contingent claim, there is the right to transact but not the obligation. Given that the holder of the contingent claim has the option as to whether to transact or not, contingent claims have become synonymous with the term \u201coption.\u201d<\/p>\n<p>Due to this choice, the payoff profile of an option contract is not linear. Instead, options limit losses in one direction and therefore transform the payoff profile of the underlying asset.<\/p>\n<blockquote>\n<h2><strong>Question<\/strong><\/h2>\n<p>Which statement best describes the key difference between a forward commitment and a contingent claim?<\/p>\n<p>A. A forward commitment allows the holder to choose whether to transact whereas a contingent claim is always enforceable<\/p>\n<p>B. A forward commitment creates an obligation to transact whereas a contingent claim allows for transacting to be optional<\/p>\n<p>C. A forward commitment is enforceable and a party must transact whereas a contingent claim allows the seller to choose whether to enforce the transaction<\/p>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is B.<\/p>\n<p>A forward commitment creates an obligation between the transacting parties whereas a contingent claim creates the right but not the obligation to transact at a future date.<\/p>\n<\/blockquote>","protected":false},"excerpt":{"rendered":"<p>Derivatives typically fall into one of two classifications, either forward commitments or contingent claims. The primary difference between the two is around obligations. Forward commitments carry an obligation to transact, whereas contingent claims confer the right to transact, but not&#8230;<\/p>\n","protected":false},"author":18,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[10],"tags":[],"class_list":["post-3683","post","type-post","status-publish","format-standard","hentry","category-derivatives","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Forward Commitments vs Contingent Claims | CFA Level 1<\/title>\n<meta name=\"description\" content=\"Understand the key differences between forward commitments and contingent claims in derivatives, focusing on obligations and pricing.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/derivatives\/forward-commitments-versus-contingent-claims\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Forward Commitments vs Contingent Claims | CFA Level 1\" \/>\n<meta property=\"og:description\" content=\"Understand the key differences between forward commitments and contingent claims in derivatives, focusing on obligations and pricing.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/analystprep.com\/cfa-level-1-exam\/derivatives\/forward-commitments-versus-contingent-claims\/\" \/>\n<meta property=\"og:site_name\" content=\"AnalystPrep | CFA\u00ae Exam Study Notes\" \/>\n<meta property=\"article:published_time\" content=\"2019-09-14T17:33:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-03-08T11:42:44+00:00\" \/>\n<meta name=\"author\" content=\"admin\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"admin\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/derivatives\/forward-commitments-versus-contingent-claims\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/derivatives\/forward-commitments-versus-contingent-claims\/\"},\"author\":{\"name\":\"admin\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/78444b55b561e9abfb993836133a1251\"},\"headline\":\"Forward Commitments versus Contingent Claims\",\"datePublished\":\"2019-09-14T17:33:00+00:00\",\"dateModified\":\"2026-03-08T11:42:44+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/derivatives\/forward-commitments-versus-contingent-claims\/\"},\"wordCount\":386,\"articleSection\":[\"Derivatives\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/derivatives\/forward-commitments-versus-contingent-claims\/\",\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/derivatives\/forward-commitments-versus-contingent-claims\/\",\"name\":\"Forward Commitments vs Contingent Claims | CFA Level 1\",\"isPartOf\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#website\"},\"datePublished\":\"2019-09-14T17:33:00+00:00\",\"dateModified\":\"2026-03-08T11:42:44+00:00\",\"author\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/78444b55b561e9abfb993836133a1251\"},\"description\":\"Understand the key differences between forward commitments and contingent claims in derivatives, focusing on obligations and pricing.\",\"breadcrumb\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/derivatives\/forward-commitments-versus-contingent-claims\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/analystprep.com\/cfa-level-1-exam\/derivatives\/forward-commitments-versus-contingent-claims\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/derivatives\/forward-commitments-versus-contingent-claims\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Forward Commitments versus Contingent Claims\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#website\",\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/\",\"name\":\"AnalystPrep | CFA\u00ae Exam Study Notes\",\"description\":\"\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/78444b55b561e9abfb993836133a1251\",\"name\":\"admin\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/secure.gravatar.com\/avatar\/?s=96&d=mm&r=g\",\"contentUrl\":\"https:\/\/secure.gravatar.com\/avatar\/?s=96&d=mm&r=g\",\"caption\":\"admin\"},\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/author\/admin\/\"}]}<\/script>\n<meta property=\"og:video\" content=\"https:\/\/www.youtube.com\/embed\/00HzgJftwpU\" \/>\n<meta property=\"og:video:type\" content=\"text\/html\" \/>\n<meta property=\"og:video:duration\" content=\"3433\" \/>\n<meta property=\"og:video:width\" content=\"480\" \/>\n<meta property=\"og:video:height\" content=\"270\" \/>\n<meta property=\"ya:ovs:adult\" content=\"false\" \/>\n<meta property=\"ya:ovs:upload_date\" content=\"2019-09-14T17:33:00+00:00\" \/>\n<meta property=\"ya:ovs:allow_embed\" content=\"true\" \/>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Forward Commitments vs Contingent Claims | CFA Level 1","description":"Understand the key differences between forward commitments and contingent claims in derivatives, focusing on obligations and pricing.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/analystprep.com\/cfa-level-1-exam\/derivatives\/forward-commitments-versus-contingent-claims\/","og_locale":"en_US","og_type":"article","og_title":"Forward Commitments vs Contingent Claims | CFA Level 1","og_description":"Understand the key differences between forward commitments and contingent claims in derivatives, focusing on obligations and pricing.","og_url":"https:\/\/analystprep.com\/cfa-level-1-exam\/derivatives\/forward-commitments-versus-contingent-claims\/","og_site_name":"AnalystPrep | CFA\u00ae Exam Study Notes","article_published_time":"2019-09-14T17:33:00+00:00","article_modified_time":"2026-03-08T11:42:44+00:00","author":"admin","twitter_card":"summary_large_image","twitter_misc":{"Written by":"admin","Est. reading time":"2 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/derivatives\/forward-commitments-versus-contingent-claims\/#article","isPartOf":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/derivatives\/forward-commitments-versus-contingent-claims\/"},"author":{"name":"admin","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/78444b55b561e9abfb993836133a1251"},"headline":"Forward Commitments versus Contingent Claims","datePublished":"2019-09-14T17:33:00+00:00","dateModified":"2026-03-08T11:42:44+00:00","mainEntityOfPage":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/derivatives\/forward-commitments-versus-contingent-claims\/"},"wordCount":386,"articleSection":["Derivatives"],"inLanguage":"en-US"},{"@type":"WebPage","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/derivatives\/forward-commitments-versus-contingent-claims\/","url":"https:\/\/analystprep.com\/cfa-level-1-exam\/derivatives\/forward-commitments-versus-contingent-claims\/","name":"Forward Commitments vs Contingent Claims | CFA Level 1","isPartOf":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#website"},"datePublished":"2019-09-14T17:33:00+00:00","dateModified":"2026-03-08T11:42:44+00:00","author":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/78444b55b561e9abfb993836133a1251"},"description":"Understand the key differences between forward commitments and contingent claims in derivatives, focusing on obligations and pricing.","breadcrumb":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/derivatives\/forward-commitments-versus-contingent-claims\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/analystprep.com\/cfa-level-1-exam\/derivatives\/forward-commitments-versus-contingent-claims\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/derivatives\/forward-commitments-versus-contingent-claims\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/analystprep.com\/cfa-level-1-exam\/"},{"@type":"ListItem","position":2,"name":"Forward Commitments versus Contingent Claims"}]},{"@type":"WebSite","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#website","url":"https:\/\/analystprep.com\/cfa-level-1-exam\/","name":"AnalystPrep | CFA\u00ae Exam Study Notes","description":"","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/analystprep.com\/cfa-level-1-exam\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/78444b55b561e9abfb993836133a1251","name":"admin","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/image\/","url":"https:\/\/secure.gravatar.com\/avatar\/?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/?s=96&d=mm&r=g","caption":"admin"},"url":"https:\/\/analystprep.com\/cfa-level-1-exam\/author\/admin\/"}]},"og_video":"https:\/\/www.youtube.com\/embed\/00HzgJftwpU","og_video_type":"text\/html","og_video_duration":"3433","og_video_width":"480","og_video_height":"270","ya_ovs_adult":"false","ya_ovs_upload_date":"2019-09-14T17:33:00+00:00","ya_ovs_allow_embed":"true"},"_links":{"self":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/3683","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/users\/18"}],"replies":[{"embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/comments?post=3683"}],"version-history":[{"count":9,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/3683\/revisions"}],"predecessor-version":[{"id":59493,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/3683\/revisions\/59493"}],"wp:attachment":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/media?parent=3683"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/categories?post=3683"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/tags?post=3683"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}