Definition of a futures contract A futures contract is an agreement between a seller and a buyer.The agreement calls for a seller to deliver a specified quantity of a particular grade of a certain commodity or its cash equivalent to a predetermined location on a certain date
Definition of a futures contract ◼ A futures contract is an agreement between a seller and a buyer. The agreement calls for a seller to deliver a specified quantity of a particular grade of a certain commodity or its cash equivalent to a predetermined location on a certain date
What is Risk Transfer and Why transfer it? Ask any farmer about the risks involved in growing a crop of corn
What is Risk Transfer and Why transfer it? ◼ Ask any farmer about the risks involved in growing a crop of corn
What is Risk Transfer and Why transfer it? If the weather during the growing season is too dry or too wet or too windy,the farmer may have a poor crop,but so will other farmers
What is Risk Transfer and Why transfer it? ◼ If the weather during the growing season is too dry or too wet or too windy, the farmer may have a poor crop, but so will other farmers
Who Benefits from the Transfer of Risk? The transfer of risk using a futures contract can benefit the buyers,or the seller,or both
Who Benefits from the Transfer of Risk? ◼ The transfer of risk using a futures contract can benefit the buyers, or the seller, or both
Who Benefits from the Transfer of Risk? The trader who took the other side of the corn transaction is unhappy to be losing $1 on the trade. The risk in this case has been transferred from the producer (seller)to the buyer
Who Benefits from the Transfer of Risk? ◼ The trader who took the other side of the corn transaction is unhappy to be losing $1 on the trade. ◼ The risk in this case has been transferred from the producer (seller) to the buyer