Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Address the similarity and differences between option and forward/futures contracts.
Expert Solution
Step 1
An option contract is referred to as the promise, which used to meet the requirements regarding the formation of the contracts as well as limits for the power of the promisor that revoke the offer. An option contracts is defined as the type of contract that used to protect an offeree from an ability of offeror for offering the contract engagement.
Forward contracts is referred to as the customized contract, which are between the 2 parties for purchase or sell at the particular price on the date of future. Forward contract that used to hedge or speculate for their non-standardized nature, which used in hedging.
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