Question
Define forward markets and futures markets. Discuss their main features and explain their role in managing price risk in commodity trading.
Answer :
Word Count : 613
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Forward markets and futures markets are essential components of commodity trading, serving to manage price risk and provide a platform for price discovery. Though both markets involve contracts that allow for the buying or selling of commodities at a future date, they differ in structure, regulation, and liquidity. The forward market is an over-the-counter (OTC) market where customized contracts are made directly between two parties to buy or sell a commodity at a predetermined price on a specified future date. These contracts are highly flexible, allowing the parties to negotiate terms such as the quantity, quality, delivery time, and location. Since they are private agreements, forward contracts are not standardized, meaning that the terms can be adjusted to meet the specific needs of the parties involved. However, the lack
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