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Question

Two persons agree to exchange 100 grams of gold three months later at ₹ 400/gram. This is an example of:

A Forward Contract Correct Answer Incorrect Answer
B Future Contract Correct Answer Incorrect Answer
C Options Correct Answer Incorrect Answer
D Swaps Correct Answer Incorrect Answer

Solution

Forward contract has a bonding agreement to buy/sell an asset at a specified date & price . Forward contract is traded over the counter , which means there is no clearing agency involved in between Buyer & Seller . Forwards and futures are very similar as they are contracts which give access to a commodity at a determined price and time somewhere in the future. A forward distinguish itself from a future that it is traded between two parties directly without using an exchange. The absence of the exchange results in negotiable terms on delivery, size and price of the contract. In contrary to futures, forwards are usually executed on maturity because they are mostly use as insurance against adverse price movement and actual delivery of the commodity takes place. 

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