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    This document summarizes and compares futures contracts, forward contracts, and option contracts. [1] Futures contracts are highly standardized foreign exchange contracts written against an exchange clearing house for delivery on a fixed date. They are characterized by standardization, organized exchanges, minimum variation, clearing houses, and costs. Margin money is required and positions are marked to market daily. [2] Futures contracts provide high liquidity, no counterparty risk, low investment needs, and suitability for uncertain transactions, but can result in imperfect hedges or speculative price movements. Forward contracts have negotiated contract sizes and counterparty risk, while futures contracts are standardized, have counterparty risk protection, speculative potential, and high liquidity. Option

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    This document summarizes and compares futures contracts, forward contracts, and option contracts. [1] Futures contracts are highly standardized foreign exchange contracts written against an exchange clearing house for delivery on a fixed date. They are characterized by standardization, organized exchanges, minimum variation, clearing houses, and costs. Margin money is required and positions are marked to market daily. [2] Futures contracts provide high liquidity, no counterparty risk, low investment needs, and suitability for uncertain transactions, but can result in imperfect hedges or speculative price movements. Forward contracts have negotiated contract sizes and counterparty risk, while futures contracts are standardized, have counterparty risk protection, speculative potential, and high liquidity. Option

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    Download as PPTX, PDF, TXT or read online from Scribd
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    6 views5 pages

    If Bharat

    Uploaded by

    jadhavbharat140
    This document summarizes and compares futures contracts, forward contracts, and option contracts. [1] Futures contracts are highly standardized foreign exchange contracts written against an exchange clearing house for delivery on a fixed date. They are characterized by standardization, organized exchanges, minimum variation, clearing houses, and costs. Margin money is required and positions are marked to market daily. [2] Futures contracts provide high liquidity, no counterparty risk, low investment needs, and suitability for uncertain transactions, but can result in imperfect hedges or speculative price movements. Forward contracts have negotiated contract sizes and counterparty risk, while futures contracts are standardized, have counterparty risk protection, speculative potential, and high liquidity. Option

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    Download as PPTX, PDF, TXT or read online from Scribd
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    FUTURES CONTRACT

    Definition: A highly standardized foreign exchange


    contract written against the exchange clearing house for a fixed number of foreign currency unit & for delivery on fixed date.

    Characteristics Standardization. Organized exchanges. Minimum variation. Clearing house. Costs.

    Hedging through futures

    Margin Money: Brokers demand a safety

    deposit from a person who is taking buy or sell position this deposit money is called as margin money. Mark to market: Broker tick the position every day for loss or gain this is called as marking to market.
    Initial

    margin Maintenance margin Mark to market margin

    FUTURES
    Advantageous features: 1. High liquidity. 2. No counterparty risk. 3. Low investment. 4. Suitable for uncertain transactions. Limiting features: 1. Imperfect hedge. 2. Speculative price movement.

    Forward contract Contract size: Negotiated between customer & bank. Risk exists. Less . Perfect hedging Non cancelable & tradable Not required no

    Futures contract Standardized.

    Risk of default: Speculative potential Hedging perfection : Liquidity: Margin money : Marked to market:

    Risk of settlement. Highly speculative. Over hedging Highly liquid required yes

    Option Contract (Currency Option)

    DEFINITION: the right to buy or sell a specific quantity of a specific asset at a fixed price at or before a specific a future date.

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