A company can fix a future purchase price with a forward or a futures hedge. Both create price exposure, but their cash-flow timing and counterparty arrangements differ. This lesson calculates their payoffs and explains a simple spot-to-forward pricing relation. Review compounding first, then use margin and collateral to understand the funding demands.
In this lesson
- Learning objectives
- The common economic commitment
- From spot to forward price
- The forward payoff changes sign at delivery price
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