Financial Markets and Institutions
Financial Markets and Institutions
6th Edition
ISBN: 9780077641825
Author: SAUNDERS
Publisher: Mcgraw-Hill Course Content Delivery
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Chapter 23, Problem 1DYU
Summary Introduction

To discuss: Differences between forward and future contracts.

Expert Solution & Answer
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Explanation of Solution

The major differences between future contract and forward contracts are as follows,

  • Future contracts are traded with fixed maturities in open markets in standardized form, whereas forwards are two counterparty bilateral agreements. These can therefore customize to the needs of customer.
  • Future contracts are listed on the market every day while there are no forward contracts. The default risk for the latter is higher.
  • Futures are rarely delivered. Rather, before maturity, they are closed (reversed). Delivery normally occurs in most forward contracts.

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