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What are futures and forwards?

Future and forward contracts (more commonly referred to as futures and forwards) are contracts that are used by businesses and investors to hedgeagainst risks or speculate. Futures and forwards are examples of derivative assets that derive their values from underlying assets.

What is the difference between forward contract and future contract?

In forward contract, terms are negotiated between parties. In this, parties trade underlying asset a certain or agreed price at particular future time. This contract differs from future contract (standardized form of forward contract) whereas in future contract parties buy or sell underlying financial asset at particular rate in future time.

What is a forward market?

A forward market is a contract entered into between a buyer and seller for future delivery of stock or currency or commodity. The buyer in a forward contract gains if the price at which he buys is less than the spot price and he will lose if the price is higher than the spot price. What is the purpose of forward contract in a forward market?

Is future price larger than forward price?

In Hull's book 'Options, Futures and Other derivatives', author said that when price of underlying asset S is strongly positively correlated with the interest rate, future price is slightly larger than forward price for same contract. I understand his description under that assumption.

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