Futures Contracts (page 95)Agreementto buy or sell an assetforacertain price at a certain timeSimilar to forward contractWhereas a forward contract is traded OTCa futures contract is traded on anexchange11RiskManagementandFinancialInstitutions,3e,Chapter5,CopyrightJohnC.Hull2012
Futures Contracts (page 95) ⚫ Agreement to buy or sell an asset for a certain price at a certain time ⚫ Similar to forward contract ⚫ Whereas a forward contract is traded OTC, a futures contract is traded on an exchange Risk Management and Financial Institutions, 3e, Chapter 5, Copyright © John C. Hull 2012 11
Futures Contract continued. Contracts are settled daily (e.g., if acontract is on 2o0 ounces of Decembergold and the December futures moves $2in my favor, I receive $400; if it moves $2against me I pay $400)Both sides to a futures contract arerequired to post margin (cash ormarketable securities) with the exchangeclearinghouse. This ensures that they willhonor their commitments under thecontract.RiskManagementandFinancialInstitutions,3e,Chapter5,CopyrightJohnC.Hull201212
Futures Contract continued ⚫ Contracts are settled daily (e.g., if a contract is on 200 ounces of December gold and the December futures moves $2 in my favor, I receive $400; if it moves $2 against me I pay $400) ⚫ Both sides to a futures contract are required to post margin (cash or marketable securities) with the exchange clearinghouse. This ensures that they will honor their commitments under the contract. Risk Management and Financial Institutions, 3e, Chapter 5, Copyright © John C. Hull 2012 12