This type of contract is used to manage business risks, such as fluctuations in commodity prices or foreign currency exchange rates.
A forward contract is a legally binding agreement between two parties to conduct a trade at a predetermined price and quantity on a specified future date. Unlike other financial instruments, no money is exchanged at the time of signing the contract. This type of contract is commonly used to mitigate business risks associated with fluctuations in commodity prices or foreign currency exchange rates. It allows businesses to lock in a favorable price and quantity, providing stability and predictability in their operations.
