PowerPoint Presentation

Forwards and Futures. AMABELLE B. NIEZ.

FORWARD CONTRACT. Both future and forward c ontracts allows a buyer to buy and sell an asset at a specific time and price but they have a subtle differences..

FORWARD CONTRACT. is an agreement between a buyer and seller to trade an asset at a future date . The price of the asset is set when the contract is drawn up. Forward contracts have one settlement date—they all settle at the end of the contract..

Forward Contract Example Farmer Farmer I agree to sell 500kgs wheat at Rs.40/kg after 3 months. 3 months Later 500kgs wheat Rs.20,OOO Bread Maker Bread Maker.

First , futures contracts—also known as futures—are marked-to-market daily, which means that daily changes are settled day by day until the end of the contract. Furthermore, a settlement for futures contracts can occur over a range of dates ..

Basic example for a futures contract A trader who contacts with his/her bmker to buy 5000 tonnes of wheat at September. His broker contracts with the one otthe exchanges such as CME and finds a counter party. Trader takes a long position in a September futures contract to buy 5000 tonnes of wheat and agræ the price which the contract will be concluded. i. At September the long patty' has to bity 5000 tonnes of wheat even though the futures price is not in fwour of him/her. Same is true for short party, he has to sell the assets even the agreed futures price is not in favour of him..

Spot Contracts A spot contract is a document that has a purchase or sale of a currency, security, or commodity for quick delivery and payment for the spot date, which is around two days after the trade date. The spot price is the current price that is given for settling the spot contract..