What is What are Forward Contracts?

Forward Contract means an agreement between the parties wherein the seller and buyer deliver and purchase the item at a particular amount and at a predefined price and date. When this agreement is signed, it binds the seller to sell the product at a settled price to the buyer in the agreement in future time.

In this type of Agreement the settlement takes place at the end of a forward contract, and it can be done on a cash or delivery basis. Usually commodities such as wheat, oil, steel, silver, coffee beans, cattle,oil and many other tradable assets. However, it also includes financial instruments such as currencies, treasury bonds, interest rates, stocks, market indices, and others.

Why it is needed ?

The importance of the forward contract is where two parties make an agreement but the actual transaction takes place on the settlement date. Forward Contracts are most important in the COVID-19 as the market has been hit hard and disrupted the global market so by coming into agreement with the terms and conditions for future date and price is the best option for the buyers and the best solution to protect the business.

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