Financial Markets and Institutions
6th Edition
ISBN: 9780077641825
Author: SAUNDERS
Publisher: Mcgraw-Hill Course Content Delivery
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Question
Chapter 10, Problem 1DYU
Summary Introduction
To discuss: The difference between spot, forward and future contract.
Expert Solution & Answer
Explanation of Solution
Spot contract:
Spot contract is a contract in which purchasing and selling of currency, commodity, or security for sudden settlement on the spot date. Which is usually two business days after the transaction date.
Future contract:
Future contract is a standardized contract of buying and selling of underlying asset in a specified price and particular time in future.
Forward contract:
Forward contract is an agreement between parties to buy or sell an underlying asset in future at a specified date, and certain price.
The main differences between spot forward and future contract is as follows:
| Spot contract | Forward contract | Future contract |
| It is used to merchandise the commodity. | It is used to hedge against the price changes | It is used to hedge against the price changes |
| Trades in uneven amounts | Specified amount | Predetermined amount |
| There is a sudden settlement | On maturity | On a daily basis |
| Immediate contract | Customized contract | Standardized contract |
| No need of collateral | Collateral not required | Initial margin needed |
| Self-regulated | Self-regulated | Stock exchange |
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Chapter 10 Solutions
Financial Markets and Institutions
Ch. 10 - Prob. 1DYUCh. 10 - Prob. 2DYUCh. 10 - Prob. 3DYUCh. 10 - Prob. 4DYUCh. 10 - Prob. 5DYUCh. 10 - Prob. 6DYUCh. 10 - Prob. 7DYUCh. 10 - Prob. 8DYUCh. 10 - Prob. 9DYUCh. 10 - Prob. 10DYU
Ch. 10 - Prob. 11DYUCh. 10 - Prob. 12DYUCh. 10 - Prob. 13DYUCh. 10 - Prob. 14DYUCh. 10 - Prob. 15DYUCh. 10 - Prob. 1QCh. 10 - Prob. 2QCh. 10 - Prob. 3QCh. 10 - Prob. 4QCh. 10 - Prob. 5QCh. 10 - Prob. 6QCh. 10 - Prob. 7QCh. 10 - Prob. 8QCh. 10 - Prob. 9QCh. 10 - Prob. 10QCh. 10 - Prob. 11QCh. 10 - Prob. 12QCh. 10 - Prob. 13QCh. 10 - Prob. 14QCh. 10 - Prob. 15QCh. 10 - Prob. 16QCh. 10 - Prob. 17QCh. 10 - Prob. 18QCh. 10 - Prob. 19QCh. 10 - Prob. 20QCh. 10 - Prob. 1PCh. 10 - Prob. 2PCh. 10 - Prob. 4PCh. 10 - Prob. 5PCh. 10 - Prob. 6PCh. 10 - Prob. 7PCh. 10 - Prob. 8PCh. 10 - Prob. 9PCh. 10 - Prob. 10PCh. 10 - Prob. 11PCh. 10 - Prob. 12PCh. 10 - Prob. 13PCh. 10 - Prob. 14PCh. 10 - Prob. 15PCh. 10 - Prob. 16PCh. 10 - An insurance company owns $50 million of...
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