Forward Contracts Flashcards
1
Q
Is a forward contract valid when the prices negotiated in the contract have significantly increased in the market?
A
- Forward contracts limits the sellers risks and shifts much of the risk to the buyer (regardless of the quantity/quality of the product sales have been secured)
- The reasons for the fluctuation in the prices have no relevance in determining he validity of the contract
- Those who enter into forward contracts normally are experienced in making such contracts, and set the price at which they expect to make a profit, therefore contracts will be held valid
