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Options and forward contracts are both derivatives that allow investors to manage risk and speculate on price movements. An option gives the holder the right, but not the obligation, to buy or sell an asset at a predetermined price before a specified expiration date, while a forward contract obligates both parties to buy or sell an asset at a specified price on a future date. Options typically involve a premium payment, whereas forward contracts usually require no upfront payment. Both instruments are used for hedging and speculative purposes, but they have different risk profiles and payoff structures.
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What type of derivative instrument is a forward-based contract in which two parties agree to exchange streams of payments for a specified period of time?
A forward-based contract in which two parties agree to exchange streams of payments for a specified period of time is known as a "swap." Swaps are derivative instruments that typically involve the exchange of cash flows, which can be based on interest rates, currencies, or commodities. These agreements allow parties to hedge risk or speculate on changes in market conditions over the contract's duration.
Forward market hedge?
forward market hedging is the way of making profit by predicting contract in advance to buy and sell of goods in the future.
Advantages of operating in forward market?
Forward market allows the dealers to concentrate on their core line of business because they don't bother themselves with the risk of currency exchange. There is no premium paid upfront on forward contract as compared to futures and options.
About derivatives market you mean the exacltly definition of derivative market?
the derivative market means the the price of particular product in the market is fluctuating time by time.
What is a standardized forward contract called?
A standardized forward contract is typically referred to as a futures contract. Unlike traditional forward contracts, which are customized agreements between two parties, futures contracts are traded on exchanges and have standardized terms regarding quantity, quality, and delivery dates. This standardization allows for greater liquidity and price discovery in the market.
When you choose future contract over forward contract?
When there isn't an active market for the forward contract. Generally, Futures contracts have a much more active open market than forward contracts and have alot more choice in terms of expiration months than forward contracts.
What is a market risk when entering into a derivative contract?
Market Risk. This is the potential financial loss due to adverse changes in the fair value of a derivative. Market risk encompasses legal risk, control risk, and accounting risk.
What type of derivative instrument is a forward-based contract in which two parties agree to exchange streams of payments for a specified period of time?
A forward-based contract in which two parties agree to exchange streams of payments for a specified period of time is known as a "swap." Swaps are derivative instruments that typically involve the exchange of cash flows, which can be based on interest rates, currencies, or commodities. These agreements allow parties to hedge risk or speculate on changes in market conditions over the contract's duration.
Forward market hedge?
forward market hedging is the way of making profit by predicting contract in advance to buy and sell of goods in the future.
What are the differences between a forward contract a future contract and options?
1) forward contract is not standardised one..it is only traded in OTC(over the counter) where as future contract is a standardised one it is traded in Secondary Market
Is a Spot FX deal a derivative contract?
No, a Spot FX deal is not considered a derivative contract. It involves the immediate exchange of currencies at the current market rate, with settlement typically occurring within two business days. In contrast, derivative contracts derive their value from an underlying asset, such as currency futures or options, and involve agreements to buy or sell at a future date.
What rolling forward contract is known?
A rolling forward contract is a financial agreement that allows parties to extend the maturity of a forward contract by simultaneously closing out the existing contract and entering into a new one with a later expiration date. This type of contract is commonly used in foreign exchange and commodities markets to manage risk and maintain exposure over time. By rolling forward, participants can adapt to changing market conditions while avoiding the need to settle the contract.
Why forward contract is not a market regulation?
Forward contracts aren't regulated because they are impossible to regulate. They are all different and they're customized to the needs of the counterparties.
Advantages of operating in forward market?
Forward market allows the dealers to concentrate on their core line of business because they don't bother themselves with the risk of currency exchange. There is no premium paid upfront on forward contract as compared to futures and options.
About derivatives market you mean the exacltly definition of derivative market?
the derivative market means the the price of particular product in the market is fluctuating time by time.
What is forward rate in foreign exchange market?
Transaction in future date by forward contract(future delivery) to purchase/sell foreign exchange at prevailing rate.
Difference between forward market and spot market?
Spot market is also known as "cash market" where the commodities are sell on the current price or the spot rate and deliver immediately, where as in case of forward market, market dealing with commodities for future delivery at prices agreed upon today (date of making the contract).
