Which best explains what a futures contract does? (2024)

Which best explains what a futures contract does?

Final answer: A futures contract is an agreement to buy or sell a specific quantity of a commodity or financial instrument at a predetermined price at a future date, primarily used for hedging or speculation.

What does a futures contract do?

Prices are always changing, but with a futures contract, people can lock in a fixed price to buy or sell at a future date. Locking in a price lessens the risk of being negatively impacted by price change. Let's look at how this might work for businesses using the coffee industry as an example.

Which best explains what a futures contract does brainly?

Explanation: A futures contract is a financial agreement where two parties agree to buy or sell a specific quantity of a commodity, asset, or financial instrument at a predetermined price at a specified time in the future. It is typically used by businesses to hedge against the risk of price fluctuations.

Which best explains what a forward contract does responses?

Explanation: A forward contract is a financial agreement between two parties to buy or sell an asset or commodity at a predetermined future price and date. It is a type of derivative contract that helps manage risks associated with price fluctuations.

What is the basis on a futures contract defined as quizlet?

The basis on a futures contract is defined as: The cash price minus the forward price.

What is a futures contract also known as?

It's also known as a derivative because future contracts derive their value from an underlying asset. Investors may purchase the right to buy or sell the underlying asset at a later date for a predetermined price.

What is a futures contract example?

For example, Crude Oil is currently selling at $60 a barrel, and a futures contract for $65 per barrel is available for three months' time. As you believe the price of WTI will rise beyond $65 by the time of expiry, you buy the contract.

What is an example of a futures contract trade?

Futures contract trading example

Say it's April and you think the price of oil is going to rise in the future – you could open a long spread bet or CFD on a June oil future. Your profit is determined by how much the price of oil has risen by the future's expiry, and the size of your position – less any charges.

What is the difference between a contract and a futures contract?

A forward contract is a private, customizable agreement that settles at the end of the agreement and is traded over the counter (OTC). A futures contract has standardized terms and is traded on an exchange, where prices are settled daily until the end of the contract.

What is a futures contract reddit?

• 1y ago. Just like the name, futures trading involves trading in the future. You enter into a contract to buy or sell a commodity at a future date and price.

Which of the following is a characteristic of a futures contract?

Which of the following is a characteristic of a futures contract? It is a standardized contract traded on an exchange. It gives the buyer the right, but not the obligation, to buy or sell the underlying asset at a specified price on a specified date.

Which of the following best describe the difference between futures contract and forward contract?

Forwards are never marked to the market. Their distinctive features are exclusiveness and a specified price. Futures are marked to market daily, meaning they are settled every day until the contract's expiration date.

What is the formula for futures contracts?

Futures Contracts Pricing

Futures price = (Spot price * (1 + r)^t) + (net cost of carry)

How is the price of a futures contract determined?

Futures price will be equal to spot price plus the net cost of carrying the assets till expiry. Here carrying costs may include storage costs, interest paid to acquire assets or financing costs. Carrying returns will include any income earned with these assets, like dividends and bonuses.

What are the advantages and disadvantages of futures contracts?

Future contracts have numerous advantages and disadvantages. The most prevalent benefits include simple pricing, high liquidity, and risk hedging. The primary disadvantages are having no influence over future events, price swings, and the possibility of asset price declines as the expiration date approaches.

Which of the following statements regarding futures contract is most accurate?

Expert-Verified Answer

The statement that "an agreement to buy or sell a specified amount of an asset at today's spot price on the maturity date of the contract" is the most accurate description of a futures contract.

How does a futures contract differ from a forward contract quizlet?

B. futures contracts are personalized, unique contracts; forwards are standardized.

How is a futures contract different than a forward contract quizlet?

Futures Contracts is basically a Standardized Forwards Contract. You can trade Futures Contract on an exchange. Futures Contract is guaranteed by the clearinghouse or the exchange. So there is no more Counterparty Risk.

What is the concept of futures?

Futures are financial contracts that obligate the buyer to purchase an underlying asset, such as a commodity, currency, or stock index, at a predetermined price and date in the future. They are used as a tool for hedging against price fluctuations, speculating on market movements, and managing risk.

What is a futures contract in the NFL?

A Reserve/Futures contract lets a team claim the rights to a player as they make up the 90-man roster heading into OTAs and training camp. These deals are usually around the minimum salary commensurate with the player's experience and are not guaranteed.

What is an example of a futures contract?

Let us assume that you have purchased a futures contract for 100 shares of XYZ company at a value of Rs. 50 per share at a certain date. When the contract expires, you will receive those shares bought at Rs. 50, the same price at which you agreed to buy them, irrespective of the present price prevailing.

What is a futures contract for beginners?

Futures contract example

You can enter into a futures contract to sell a specific quantity of wheat at a fixed price to a buyer, say, six months from now. If the price of wheat falls below the contract price when the contract expires, you benefit because you get to sell your wheat at a higher price.

What is basic futures strategy?

The most-often used trading strategies in the futures markets are pretty simple. You buy if you think prices are going up or sell if you think prices are going down. And, in futures trading, selling first is just as easy as buying first—the positions are treated equally from a regulatory point of view.

What is the futures contract price?

A futures contract price is commonly determined using the spot price of a commodity, expected changes in supply and demand, the risk-free rate of return for the holder of the commodity, and the costs of transportation or storage in relation to the maturity date of the contract.

What are the three types of futures?

There are different types of futures, both in the financial and commodity markets. Stock, index, currency, and interest futures are examples of financial futures. Futures are also available for agricultural products, gold, oil, cotton, oilseed, and other commodities.