Intro-Forwards_02

Intro-Forwards_02 - An Introduction to Forwards by Dr....

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by Dr. Fernando Diz An Introduction to Forwards
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Objectives Understand the mechanics of forward  contracting. The “cost” of forward contracts. Who wins and who loses and why. Calculate the notional value and leverage  of a forward contract.
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Forward Contracts Forward contract :  an agreement that  obligates   the party who agrees to buy, to  take delivery of a specified commodity and  pay the specified contract price  (forward  price) at an agreed upon time  (maturity or  settlement date).
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Three Elements of a Forward Contract 1 The commodity  and quantity  that will be  exchanged. 2 The exchange price  for the commodity at  the settlement time (forward price). 3 The time  when the exchange will take  place.
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Participants Buyer (party that enters the agreement as  the future buyer)  Writer (party that enters the agreement as  the future seller)
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Forwards (Example) A house purchase offer is an example of a  forward contract. Commodity exchanged ? The house. Exchange price ? Agreed upon  purchase price. Exchange time ?  Time of closing.
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Participants A house purchase offer is an example of a  forward contract. Buyer?  New Home Owner Writer ? House Seller
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What is the Cost? Generally, the parties enter the agreement 
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This note was uploaded on 02/09/2010 for the course FIN 459 taught by Professor Yildary during the Spring '07 term at Syracuse.

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Intro-Forwards_02 - An Introduction to Forwards by Dr....

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