What is a Forward Contract?
A Forward contract is a standardized contract that is traded on stock exchanges, and settles on a daily basis.Formula
F0=S0×erTHow do I calculate the forward contract?
When calculating a forward contract, it is important to remember the formula F0=S0×erT. This formula takes the current spot price of the underlying asset and multiplies it by the rate of return for the period of time, thus determining the forward price. It is important to note that the forward price includes any carrying costs that may be associated with the forward contract. For those looking to calculate a forward contract, tools such as Sourcetable can be used to make the process easier.
What is a forward contract?
A forward contract is a customized derivative contract that allows two parties to buy or sell an asset at a specified price on a future date.
Who can enter into a forward contract?
Two parties can enter into a forward contract.
What is the purpose of a forward contract?
The purpose of a forward contract is to buy or sell an asset at a specified price on a future date.
Key Points
How do I calculate forward contract?
F0=S0×erT
Hedging and Speculation
A forward contract can be used for hedging or speculation, allowing buyers and sellers to either protect themselves against potential losses or take advantage of price movements in a security.
Standardized Contracts
Forward contracts are standardized, meaning they have a set structure and a certain set of rights and obligations that both parties have to adhere to.
Over-the-Counter Instruments
Forward contracts are over-the-counter instruments, meaning they are traded directly between two parties without the involvement of an exchange or intermediary.
