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Forward and futures contracts

Derivatives / derivatives and risk management · Lesson 2 of 4

Lesson 2 of 4

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Lesson 2 of 4 · Derivatives / derivatives and risk management

Forward and futures contracts

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By the end you’ll be able to

compare and contrast forward contracts and futures contracts, including standardization, trading venue, settlement, margin requirements, and counterparty risk
calculate and interpret the forward price and futures price of an asset using spot price, financing cost, and benefits or costs of carry
calculate and interpret the value of a forward or futures contract at initiation and during the life of the contract

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explain and apply the use of forward and futures contracts to hedge price risk, interest rate risk, equity market risk, and foreign exchange risk

distinguish among cash settlement, physical delivery, and contract closeout and explain their implications for users of futures markets

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