Answer to Question #96851 in Finance for ABU

Question

Explain the various differences between forward and future contracts

Answer 1

Forward and future contracts

We need to write the various differences between forward and future contracts

Answer:

Differences:

1) Forward contracts are traded over- the-counter market , But the  future contracts are traded on the exchange.

2). Forward contracts are an agreements between two parties to buy or sell an asset at a pre-agreed future point in time.

In Future contracts, parties agree to buy and sell the asset at a fixed price and a future specified date

3). We can Identify the profit or loss on a forward contract is only at the time of settlement,

We can Identify the  profit or loss on a future contract in every day. It is exchanged in cash every day.

4). In the forward contract, The credit exposure can keep increasing.

In the future position, the credit exposure is again zero.