FORWARD CONTRACT

Forward contract:

                                       Forward contract is an agreement made today between two persons under which one party agree to buy and the other party agrees to sale a specified asset at a specified date at an 130

For example:-

                                You want to purchase a book the current market price of that book is 120. You want to purchase that book one month latter and entered into contract with the seller to purchase at a price Rs 130. So here the forward price is Rs 130. The contract you entered is forward contract.

Feature of forward contract :

1.       Unique: forward contract is unique in that it is one to one basis no other party is involved here.

2.       Performance obligation: both the party are obliged to perform.

3.       Price risk is eliminated: price in this type of contract is known to both the party from the beginning.

4.       No margin & premium: in forward contract no margin & premium is required since in this contract both the party are obliged to do their part of obligation.

5.       Illiquide:  forward contract is not tradeable.