| Course | GF561 Derivatives and Hedging |
|---|---|
| Unit | Unit 1 |
| Paper type | Discussion board post |
| Length | About 440 words, 2 pages double-spaced |
| Format | APA 7 discussion post |
| School | Purdue University Global |
| Program | MS in Finance |
| Updated | October 2026 |
Free sample paper for GF561 Unit 1
The Asphalt Contract Was a Forward: A Unit 1 Post on Who Carried Which Risk
GF561 · Unit 1 Discussion
Posted by [Student Name]
The paving contractor, its supplier, the figures and the classmates are composite; the textbooks cited are real.
Initial Post
For three seasons I handled purchasing at a highway paving contractor in the Midwest. Every spring we signed an agreement with an asphalt terminal: a fixed price of $610 a ton for liquid asphalt binder from May through October, delivered as we needed it, up to 54,000 tons, with a minimum take of 85 percent.
In this course's terms, that agreement was a long forward position on asphalt. We agreed today on a price for delivery later, settled by physical delivery, and negotiated it privately with one counterparty rather than on an exchange (Hull, 2022).
The payoff shape is a straight line. If the terminal's posted price rose to $700, every ton we took at $610 saved us $90; if it fell to $520, every ton cost us $90 more than the market. Nothing was paid upfront, which is typical of forwards.
The contract moved price risk from us to the terminal, but it left us with two risks we had not priced: the minimum take, which made us owe for 45,900 tons even in a rainy season, and the terminal's own ability to deliver if prices spiked.
Who carried which risk? The terminal carried the price risk on our tons and presumably managed it with its own supply contracts. We carried volume risk through the minimum take. In a wet year our paving fell nearly 20 percent short, and we paid for binder we stored rather than used. Each side also carried credit risk: we relied on the terminal to deliver at $610 when the posted price was higher, and the terminal relied on us to take product when it was lower. An exchange-traded futures contract would have removed most of that credit risk through daily settlement, but no asphalt futures contract exists, which is why the private agreement made sense (Bodie et al., 2024).
What I still wonder is whether the minimum take was priced fairly. It looks like a put option we sold the terminal without being paid for it.
Reply to Grace
Grace, your hospital's fixed-rate electricity contract sounds like a forward too. Does it have a volume band, and who pays if usage falls during a slow year?
Reply to Omar
Omar, you called your employer's currency agreement a hedge. Was it settled in cash or by delivering currency, and did either side post collateral?
References
Bodie, Z., Kane, A., & Marcus, A. J. (2024). Investments (13th ed.). McGraw Hill.
Hull, J. C. (2022). Options, futures, and other derivatives (11th ed.). Pearson.
What the GF561 Unit 1 assignment asks for
The first GF561 discussion asks you to describe an agreement from a workplace you know and explain it in derivatives terms. State the agreement plainly: the asset, the price, the period, the quantity and any minimum or maximum. Then name the instrument it resembles, such as a forward, and say how it is settled and whether it is traded on an exchange or negotiated privately. Describe the payoff shape in a sentence, with figures. Explain which party carries price risk, volume risk and credit risk, and why an exchange-traded alternative might or might not exist. End with a question about a feature you cannot yet value. Replies should ask a classmate about settlement, collateral or volume terms in their example. Cite the course text in APA 7, within the posted length.
How the GF 561 Unit 1 example is put together
Three seasons of purchasing at the paving contractor open the example, followed by the terms of the asphalt agreement. The second paragraph names the agreement a long forward, citing Hull. A payoff paragraph prices the gain at $700 and the loss at $520 per ton. The highlighted sentence notes the two unpriced risks the contract left behind. A longer paragraph assigns price risk to the terminal, volume risk to the contractor through the minimum take, and credit risk to both, explaining with Bodie, Kane and Marcus why no asphalt futures contract was available. The post ends by suggesting the minimum take was an unpaid put. The reply to Grace asks about a hospital electricity contract's volume band, while Omar is asked whether his employer's currency deal settled in cash or in currency.
Reading the GF561 Unit 1 grading rubric
Points on this opening post in the MS in Finance derivatives course follow precise classification. Graders look for the agreement's terms stated clearly and then translated correctly into course vocabulary: forward or option, physical or cash settlement, exchange or over the counter. Describing the payoff with figures earns the next share. The strongest posts assign each risk to the party that bears it, including credit and volume risk that students often overlook. Noticing an embedded option or other feature that changes the agreement's value shows analytical depth. Replies are graded on whether they ask a specific question about a classmate's terms. Writing quality, a cited text in APA 7 and an appropriate length complete the grade.
Common GF561 Unit 1 mistakes, and how to avoid them
Many GF561 Unit 1 posts describe a business relationship without ever naming the instrument it resembles, so the classification step is missing. Others call every fixed-price contract a hedge without asking which party's risk it reduces. Payoffs are described in words with no numbers. Credit risk and volume risk are rarely mentioned, though they are often the risks that cause trouble. Replies tend to agree or to offer a different example instead of probing the classmate's terms. Whether your example is a fixed-rate loan, a currency agreement or an energy contract, follow the same order: terms, classification, payoff, risks by party and an unvalued feature.
Get a GF561 Unit 1 example written to your instructions
Share the GF561 Unit 1 discussion prompt, the reply rule and the rubric, plus any contract a business near you has signed; a composite stands in when none comes to mind. Classification, a payoff described in words and one genuine question for the thread all come back. The first custom sample is complimentary and returned within 24-48h. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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GF561 Unit 1 questions, answered
Should the post include a payoff diagram?
Most opening prompts ask for description rather than drawing, so the sample describes the payoff in one sentence that a diagram could later confirm. When your section allows an image, a simple sketch of the long forward line can be attached. Either way, the words and the position must agree, since that pairing is what later units grade most closely.
Where can I find a free GF561 Unit 1 sample paper?
You can read a complete GF561 Unit 1 discussion post on a paving contractor's fixed-price asphalt agreement here, classified as a forward, with risks by party, two replies and APA 7 references.
Why is the asphalt agreement a forward and not a futures contract?
It was negotiated privately with one terminal, settled by physical delivery, and carried no daily settlement or exchange clearing. A futures contract, by contrast, has standard terms, trades on an exchange and settles gains and losses daily.
How does the minimum take resemble a put option?
It obliged the contractor to pay for 45,900 tons even if it needed fewer, giving the terminal protection against weak demand, much as a put protects its holder against a fall, but the contractor received no premium for it.
Which party carried credit risk?
Both. The contractor relied on the terminal to deliver at $610 when market prices were higher, and the terminal relied on the contractor to take product when prices were lower.