The exception are 55 percent for footwear 625 for

Info icon This preview shows pages 8–10. Sign up to view the full content.

View Full Document Right Arrow Icon
come from the NAFTA region. The exception are 55 percent for footwear, 62.5 for passenger automobiles and light trucks (plus their engines and transmissions), and 60 for other vehicles and automotive parts. QUESTION 14: In a short essay, discuss the characteristics of the forward market. Nowadays, changing money from one currency to another and moving around has become a daily activity for some companies. The foreign-exchange market is made up many players and offers various trading tools. The foreign-exchange market is divided into two major segments: the exchange-traded market and the over-the counter market, to which the forward market belong. Forward markets (like futures markets) trade contracts that determine a current price for a commodity transaction designated to take place at a later date. The history of forward contracts can be traced back to ancient times. Due to the difficulties of transport and communication, trading based on samples was common and some form of forward contracting was essential. To understand more easily the characteristics of the forward market needs to be compared to two similar tools: the spot market and futures market, to which it is often associated. First, the forward market shall be distinguished from the spot market. While the spot market is for foreign-exchange transactions that occur within two business days, the forward market deals with Despite being fundamental to commodity and financial and trading, there is some confusion over the precise definition of forward and futures contracts . While common usage sometimes defines futures and forwards as synonyms, a futures contract is a specialized form of forward contract that is standardized and traded on a futures exchange.
Image of page 8

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
As such, a technical distinction is required between futures markets and forwards markets. There is a difference in the method sold. Forwards are sold over-the-counter , meaning that there are sold by the issuer directly to another person . It should not be confused with futures market, as a future contract is sold over an exchange, a dedicated platform for the buying and selling of assets. While this seems like a minor difference, it is important in this case. While on the futures exchanges the contracts are usually standardized forms with information pertaining to the sale filled in, the forward market is typically highly customized . The buyer and the seller usually work together to create a unique contract that will be beneficial to both parties. Though the forward market is not exchange traded, chances of parties defaulting are very low (the agreement is often more complex and double-sided ). By design, futures contracts are readily transferable via the trading mechanisms provided by the exchange. Because forward contracts depend on the performance of the two original parties to the contract , these contracts are often difficult to transfer . One practical implication of this difference is that if a futures trader wants to close out a position, an equal number of offsetting contracts for that commodity month is transacted and the original position is cancelled.
Image of page 9
Image of page 10
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern