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FRM-1 Study Notes

Comparison of Futures with Forwards

  • Forward contract is an agreement between two parties, to make and accept delivery of a commodity/underlying asset at a certain future time and for a fixed priced. Examples are:
    • A forward agreement can be between an agricultural producer and a grain elevator
    • Forward agreement between two financial institutions on delivery of an amount of Foreign currency
  • Forwards vs. Futures
    • Forwards are not traded on exchange
    • Forwards are not guaranteed by a centralized clearing house
    • Forwards can be customized, but Futures are standardized  contracts (by exchange)

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