0
What else can I help you with?
Who guarantees that a futures contract will be fulfilled?
In a futures contract, the clearinghouse acts as the guarantor that the contract will be fulfilled. It serves as an intermediary between the buyers and sellers, ensuring that both parties meet their obligations. The clearinghouse manages the margin requirements and mitigates counterparty risk, thereby promoting market stability. This mechanism helps to ensure that trades are settled even if one party defaults.
What is a forwardbased contract?
A forwardbased contract obligates one party to buy and a counterparty to sell an underlying asset, such as foreign currency or a commodity, with equal risk at a future date at an agreed-on price.
What statement best explains what a futures contract is?
A futures contract is a contract setting the price and date for a commodity purchase.
How do you purchase a futures contract?
You purchase a futures contract by first opening a futures trading account, which is a margin account, with a futures broker. Once that is done, simply choose the specific futures contract you wish to buy and then pay its "Initial Margin", which is a deposit needed to start a futures trade.
What type of company is the Commodity Futures market?
there are two types that are part of the commodity futures market. A normal futures market is one where the price of the nearby contract is less than the price of the distant futures contract. The other is an inverted futures market, the price of the near contract is greater then the price of the distant contract.
What is market risk and basis risk in futures?
Market risk refers to the potential for financial loss due to adverse price movements in the market, affecting the value of investments or assets. In the context of futures, it encompasses the risk that the price of the underlying asset may fluctuate, leading to losses for traders holding positions in those futures contracts. Basis risk, on the other hand, is the risk that the difference between the spot price of an asset and the futures price (known as the basis) may change unfavorably, impacting the effectiveness of hedging strategies. This can occur when the futures contract does not perfectly correlate with the price movements of the underlying asset.
Which best explains what a forward contract does?
A forward contract is a financial agreement between two parties to buy or sell an asset at a predetermined price on a specified future date. It allows the buyer to lock in prices and hedge against price fluctuations, while the seller can secure future revenue. Unlike standardized futures contracts, forward contracts are customizable and traded over-the-counter, which means they carry counterparty risk. Overall, they are used to manage risk in various markets, including commodities, currencies, and financial instruments.
What type of market is the commodity market?
there are two types that are part of the commodity futures market. A normal futures market is one where the price of the nearby contract is less than the price of the distant futures contract. The other is an inverted futures market, the price of the near contract is greater then the price of the distant contract.
How many bushels of wheat in a futures contract?
A wheat futures contract covers 5000 bushels of whatever wheat (there are different kinds) is specified in the contract.
How does a futures contract work?
A futures contract works between two businesses. It allows for two businesses to come to an agreement on a given product's price despite the product's price volatility. This process allows the two businesses to transfer their risk and reward to a third party investor.
What is a counterparty agreement?
A counterparty agreement is a legal contract between two parties that outlines the terms of a financial transaction or business arrangement. It specifies the rights and obligations of each party, including payment terms, delivery conditions, and risk management provisions. Such agreements are crucial in mitigating risks associated with counterparty default, ensuring both parties are protected throughout the transaction process. They are commonly used in various financial markets, including derivatives and trading contracts.
How do futures and investment advisory firms operate?
Futures and investment advisory firms typically provide advice and manage pools of funds for institutional clients. On a fee or contract basis, these firms seek to minimize their clients' exposure to risk
