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Author Question: Explain the differences between a forward contract and a futures contract. What will be an ideal ... (Read 167 times)

maychende

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on: Jul 7, 2018
Explain the differences between a forward contract and a futures contract.
 
  What will be an ideal response?

Question 2

The term globalization refers to the establishment of worldwide operations and the development of standardized products and marketing.
 
  Indicate whether the statement is true or false


kingdude89

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Reply #1 on: Jul 7, 2018
Answer to Question 1

A forward contract is an agreement to exchange two currencies at a specified exchange rate on a set future date. No money changes hands until the delivery date of the contract. Banks quote forward prices in the same way as spot prices-with bid and ask prices at which they will buy or sell currencies. The bank's bid-ask spread is a cost for its customers.
Like a forward contract, a futures contract represents an agreement to buy or sell a currency in exchange for another at a specified price on a specified date. Unlike forward contracts, futures contracts are standardized to enable trading in organized exchanges, such as the Chicago Mercantile Exchange. While the terms of forward contracts are negotiated between a bank and its customer, futures contracts have standard amounts and maturity periods. Futures contracts are especially useful for hedging transaction exposure.

Answer to Question 2

TRUE


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