A forward contract is a customized financial agreement between two parties to buy or sell an asset at a specified price on a future date. Unlike futures contracts, forward contracts are not standardized or traded on exchanges, which introduces counterparty risk but allows for greater flexibility in terms and conditions.

Forward Contracts

A forward contract is a customized financial agreement between two parties to buy or sell an asset at a specified future date for a price agreed upon today. Unlike standardized futures contracts, forward contracts are traded over-the-counter and are not subject to exchange regulations, which can increase counterparty risk.

forward contract

financial agreement

buy or sell an asset

specified price

future date

Futures contracts are standardized legal agreements to buy or sell a commodity or financial instrument at a predetermined price at a specified time in the future. They are used for hedging risk and speculating on the price movements of the underlying asset, with both parties obligated to fulfill the contract terms at expiration.

futures contracts

not standardized

traded on exchanges

Counterparty risk is the likelihood that one party involved in a financial transaction may default on its contractual obligations, potentially leading to financial loss for the other party. This risk is prevalent in derivatives, loans, and trading markets, and is typically managed through credit assessments, collateral agreements, and risk mitigation strategies.

counterparty risk

greater flexibility

Terms and conditions are legally binding agreements between a service provider and a user, outlining the rules and guidelines for using a service or product. They protect both parties by clarifying rights, responsibilities, and limitations, thereby reducing potential disputes and liabilities.

CUSTOMIZE YOUR LEARNING

CUSTOMIZE YOUR LEARNING

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