To explain: The difference between forward contract and futures contract, the reason behind to treat futures contract as a common contract and the circumstances in which forward contract should be more preferable than futures contract.
Forward contract:
Forward contract refers to that contract in which the two parties are agreed today to make an exchange at a specified future date.
Futures contract:
Futures contract refers to a contract in which the two parties agree to trade any asset or commodity at the present price executable in future. In futures contract the delivery of product and payment activities would be execute in the near future.
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Chapter 25 Solutions
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
- Discuss the difference between forward and futures contracts, focusing on the pros and cons of each.arrow_forwardWhat is the key difference between futures contracts and options?arrow_forward(a) Outline in detail what is meant by a forward and futures contract. Evaluate the relationship between futures price and spot price, and give reasons to justify the necessity for exchange margin accounts. (b) Explain the concept of cost of carry model and its role in the pricing of financial futures contracts.arrow_forward
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT