According to Daniel Xiao Wang in an article written on helium.com, the Forward contracts represent an stipulation between two parties to steal and sell an asset at a unique(predicate) price, or indexed price, at a particularised time in the future. An example would be for a pound off company to agree to sell lumber at a certain price to a furniture manufacturer at a defined time period. This allows the lumber company to occupy in prices and the furniture company to tuck in in costs.
The Futures contract is a standardized Forward contract that is exchange traded on exchanges such as the Comex. For example, if a lumber company cannot cast out in a forward contract while prices are high, the company may choose to sell a futures contract to lock in a sales price. Then if prices reelect they can buy back or close their idle position for a profit. This has taken place without the physical spoken language of lumber and served only as a financial hedge. If prices continue to go up the company could have chosen to let the futures contract expire and got to physical delivery.
The company would not lock in prices unless they were satisfied with the price.
Option contracts convey the right, but not the obligation, to buy with the call alternative, or sell with put excerption at a specify price during a specified period of time. The Option contract can be viewed as insurance, or a hedge against market volatility. An example here would be for an airline to buy a call option for the right to purchase fuel at a specific price. If the fuel trended lower the option would expire and the airline would buy the fuel at market price. The purpose of the option in this case was to remove the uncertainty of price fluctuations.If you want to get a full essay, order it on our website: Orderessay
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