FORWARS ,FUTURES

&

CURRENCY OPTIONS

-Sangeetha.v

Forwards & Futures Forward and Futures contracts have the same function:

Both types of contracts allow people to buy or sell a specific type of asset at a specific time at a given price.

FUTURE CONTRACTS are exchange-traded and, therefore, are standardized contracts

FORWARD CONTRACTS are private agreements between two parties and are not as rigid in their stated terms and conditions.

FORWARD CONTRACTS:A forward contract is a private agreement between two parties giving the buyer an obligation to purchase an asset (and the seller an obligation to sell an asset) at a set price at a future point in time.The assets often traded in forward contracts include commodities like:

-Grain, precious metals, electricity, oil, and natural gas etc…

-But foreign currencies and financial instruments are also part of today's forward markets

FUTURE :

A 'Future' is a contract to buy or sell the underlying asset for a specific price at a pre-determined time.

If you buy a futures contract, it means that you promise to pay the price of the asset at a specified time.

If you sell a future, you effectively make a promise to transfer the asset to the buyer of the future at a specified price at a particular time.

Every futures contract has the following features: -Buyer -Seller -Expiry -Price

Some of the most popular assets on which futures contracts are available are equity stocks, commodities and currency.

OPTIONS contracts are instruments that give the holder of the instrument the right to buy or sell the underlying asset at a predetermined price.

An option can be a 'call' option or a 'put' option.

A call option gives the buyer, the right to buy the asset at a given price. This 'given price' is called 'strike price'.

A put option is the right to sell the underlying stock at a predetermined strike price by a certain date.

OPTIONS

'Currency Option'A contract that grants the holder the right, but not the obligation, to buy or sell currency at a specified exchange rate during a specified period of time.

For this right, a premium is paid to the broker, which will vary depending on the number of contracts purchased.

Currency options are one of the best ways for corporations or individuals to hedge against adverse movements in exchange rates.

Example : An option to buy US$(USD) for Indian is an USD call and an INR put.Conversely , an option to sell USD forINR is an USD put and an INR call.

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