A forward contract that calls for payment today and delivery of the underlying asset or commodity at a future date. This contract entails the delivery of one unit of the underlying asset at some future date for a price determined today and payable today. If the underlying asset has a zero yield, the prepaid forward price is just the current spot price.
A prepaid forward differs from a standard forward contract in that the payment for the forward contract and the transfer of the ownership of the underlying take place simultaneously at a future date, while its price is determined at the contract date. A prepaid forward contract may involve the sale of stock or other assets.
This type of forward contracts allows investors, for example, to protect security/ commodity positions against the risk of falling prices while still being able to benefit from rising prices.
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