Chapter 25, Problem 3CQ

Summary Introduction

To explain: The difference between forward contract and futures contract, the reason behind to treat futures contract as a common contract and the circumstances in which forward contract should be more preferable than futures contract.

Forward contract:

Forward contract refers to that contract in which the two parties are agreed today to make an exchange at a specified future date.

Futures contract:

Futures contract refers to a contract in which the two parties agree to trade any asset or commodity at the present price executable in future. In futures contract the delivery of product and payment activities would be execute in the near future.