What you'll get
- 5+ Hours
- 1 Courses
- Course Completion Certificates
- Self-paced Courses
- Technical Support
- Case Studies
Synopsis
- Provides a foundational overview of forward contracts and their function within financial markets.
- Explains the impact of interest rate fluctuations on the pricing and behavior of forward contracts.
- Details the process for calculating forward prices in various scenarios.
- Offers insights into the structure and use of commodity-based forward agreements.
- Highlights how forward contracts enable organizations to manage foreign exchange risk.
Content
| Courses | No. of Hours | Certificates | Details |
|---|---|---|---|
| Forward Contracts in Derivatives Markets | 5h 24m | ✔ | View Curriculum |
Description
This course provides an introduction to the derivatives market, focusing on forward contracts and their relationship to interest rate movements. It is designed for beginners and uses practical examples to build a clear understanding of how forwards work.
A forward contract is a customized agreement in which both parties commit to buying or selling an asset at a specified price on a set date in the future. Forwards are often used for risk management due to their flexibility, but they can also be used for speculation. Because their value depends on the underlying asset delivered at maturity, forwards are classified as derivative instruments.
Unlike standardized futures, forward contracts allow both parties to customize terms such as quantity, price, and settlement date. The long position benefits if the underlying asset’s value increases by settlement, while the short position gains if the price falls.
Advantages of forward contracts:
- High flexibility: Terms can be fully customized to meet the requirements of both parties.
- No margin obligation: Unlike exchange-traded derivatives, forwards do not require an upfront margin deposit.
Risks involved in forward contracts:
- Counterparty risk: Because the agreement relies solely on the parties involved, a default by either party can result in contract failure.
- Lack of regulatory oversight: As over-the-counter instruments, forwards are not monitored by a central authority, thereby reducing enforceability and increasing risk.
To address these limitations and improve security, futures contracts were introduced as standardized, regulated alternatives.
Requirements
- Familiarity with fundamental banking terminology.
- Demonstrate understanding of essential financial principles.
Target Audience
- Students in finance or related academic fields.
- Professionals in the financial sector.
- Those seeking a strong foundation in risk management and forward derivative products.
