Advances in Financial Theories Sample Clauses

Advances in Financial Theories. Advances in financial theories gave birth to derivatives. Initially forward contracts in its traditional form, was the only hedging tool available. Option pricing models developed by Black and Scholes in 1973 were used to determine prices of call and put options. In late 1970’s, work of Xxxxx Edeington extended the early work of Xxxxxxx and started the hedging of financial price risks with financial futures. The work of economic theorists gave rise to new products for risk management which led to the growth of derivatives in financial markets. The above factors in combination of lot many factors led to growth of derivatives instruments. What is a Forward Contract? A forward contract, often shortened to just forward, is a contract agreement to buy or sell an asset at a specific price on a specified date in the future. Since the forward contract refers to the underlying asset that will be delivered on the specified date, it is considered a type of derivative. Forward contracts can be used to lock in a specific price to avoid volatility in pricing. The party who buys a forward contract is entering into a long position, and the party selling a forward contract enters into a short position. If the price of the underlying asset increases, the long position benefits. If the underlying asset price decreases, the short position benefits. How do Forward Contracts Work? Forward contracts have four main components to consider. The following are the four components:  Asset: This is the underlying asset that is specified in the contract.  Expiration Date: The contract will need an end date when the agreement is settled and the asset is delivered and the deliverer is paid.  Quantity: This is the size of the contract, and will give the specific amount in units of the asset being bought and sold.  Price: The price that will be paid on the maturation/expiration date must also be specified. This will also include the currency that payment will be rendered in. FEATURES OF FORWARD CONTRACT Main features of forward contract are as follows;
Sample 1
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