answersLogoWhite

0

What are forward contracts in shares?

Updated: 9/15/2023
User Avatar

Wiki User

11y ago

Best Answer

A forward contract is the simplest of the Derivative products. It is a mutual agreement between two parties, in which the buyer agrees to buy a quantity of an asset at a specific price from the seller at a future date. The Price of the contract does not change before delivery. These type of contracts are binding, which means both the buyer and seller must stay committed to the contract. This means they are bound to deliver or take delivery of the product on which the forward contract was agreed upon. Forwards contracts are very useful in hedging

User Avatar

Wiki User

11y ago
This answer is:
User Avatar

Add your answer:

Earn +20 pts
Q: What are forward contracts in shares?
Write your answer...
Submit
Still have questions?
magnify glass
imp
Continue Learning about Finance

What are the uses of forward contracts?

Forward contracts are like futures: they obligate the buyer and seller to complete the transaction for a stated price. They're unlike futures: whereas a futures contract gives a specific description of what and how much product is being traded and when it's to be traded, a forward contract can be written any way you want. So...forward contracts are used when you're dealing with unknowns. Farmers use them to sell "their whole crop upon harvest" because they don't want to sell "10,000 bushels of wheat on September 9" when it might be 9,000 or 11,000 bushels, or it might come in on August 31 or September 14.


In what sense is an interest rate swap a series of forward contracts?

Both parties are getting forwards from each other so there is always going to be more than one in a swap. Ex: Forward- I buy a forward on oil promising to pay at a specific date and price Swap- I buy trade oil for corn so we each promise to pay


Can equity shares be converted in to preference shares?

i want 2 convert the equity shares of my cmpany into preference shares


What is Difference between issued shares and outstanding shares - 41k?

Issued shares(I) are shares of stock that have been sold to investors. It includes both outstanding shares(O) and Treasury shares(T). Thus, I = O+T Outstanding shares(O) are shares of stock currently owned by the shareholders.


What is buy back of shares?

Buy back of shares refers to the repurchase of shares by a firm as a means to reduce shares on the market.

Related questions

What is a forward commitment?

A forward contract is legally binding promise to perform some actions in the future . Forward commitments include forward contracts , future contracts and swaps


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 an example of a derivative product?

Derivative instruments are classified as: Forward Contracts Futures Contracts Options Swaps


How does the triceps and biceps work together to straighten your arm?

When lowering arm biceps relax and triceps contracts. When one contracts the other relaxes when you move it forward and downward.


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.


What is forward market?

forward delivery contracts are the ones in , which the dealings are only for account,and the settlement takes place once at the end of the prescribed time .the settlement period can be carried forward to the next agreed date.


What are the similarities and differences between forward and future contract?

Similarities:1. Both are derivative securities for future delivery/receipt. Agree on P and Q today for future settlement or delivery in 1 week to 10 years.2. Both are used to hedge currency risk, interest rate risk or commodity price risk.3. In principal they are very similar, used to accomplish the same goal of risk management.Differences:1. Forward contracts are private, customized contracts between a bank and its clients (MNCs, exporters, importers, etc.) depending on the client's needs. There is no secondary market for forward contracts since it is a private contractual agreement, like most bank loans (vs. bond).2. Forward contracts are settled at expiration, futures contracts are continually settled, daily settlement.3. Most (90%) of forward contracts are settled with delivery/receipt of the asset. Most futures contracts (99%) are settled with cash, NOT the commodity/asset.4. Futures markets have daily price limits.


Is a sling shot a magnetism?

No. It is just stretching an elastic material with the intent that when it contracts it will fling an object forward.


Forward contracts are traded in a competitive arena whereas futures contract may be traded by telephone or telex?

false


Commodity brokers use forward and futures contracts for what reasons?

The seasonal nature of many commodities would lead to wide variation in supply and price without these contracts.


Differences between a futures contract and a forward contract?

There are 3 different types of forward pricing: (1) Forward contracts (which include cash forward contracts, minimum price forward contracts and deferred pricing contracts) (2) Futures Contracts and (3) Option Contracts. A forward contract is an agreement between two parties to buy or sell an asset at an agreed future point in time. The trade date and delivery date are separated. A futures contract is a standardized forward contract that is traded on an exchange, like SAFEX. Other than forward contracts, futures contracts are not linked with specific buyers. The intermediary between buyers and sellers is a clearing house that ensures that contracts held for delivery are fulfilled. Options contract convey the right, but not the obligation, to buy (call option) or sell (put option) at a specified price during a specified period of time. The good traded in the market is not the actual commodity, but a futures contract. The farmer will receive a futures contract, which will carry an obligation to buy or sell at some specific future date, if he/she chooses to exercise the option.


What is the locomotion of a clam?

they whats called a "foot",so the foot slips out of the shell sticks to the sand and then it contracts pulling the clam forward