conceptSM_ch26

conceptSM_ch26 - CONCEPT QUESTIONS CHAPTER 26 26.1 What is...

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CONCEPT QUESTIONS – CHAPTER 26 26.1 What is a forward contract? An agreement to trade at a set price in the future. Give examples of forward contracts in your life. A forward contract is formed when you contract an artisan to construct a banjo and agree to pay him $1,200 on delivery. 26.2 What is a futures contract? Futures contracts are like forward contracts except that: 1. They are traded on organized exchanges. 2. They let the seller choose when to make delivery on any day during the delivery month. 3. They are marked to market daily. How is a futures contract related to a forward contract? In both contracts, it is the obligation of both the buyer and seller to settle the contract at the future date. Why do exchanges require futures contracts to be marked to the market? Because there is no accumulation of loss, the mark to the market convention reduces the risk of default. 26.3
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conceptSM_ch26 - CONCEPT QUESTIONS CHAPTER 26 26.1 What is...

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