Contingent Forward Contract In Los Angeles
Description
Form popularity
FAQ
The duration of a FRA is usually equal to one interest rate peri- od. For example, the borrower/investor may wish to stay floating for the long term but wish to lock in the interest rate for a particular interest rate payment period of the borrowing or invest- ment in the future ie.
Today, forward contracts can be for any commodity, in any amount, and delivered at any time. Due to the customization of these products they are traded over-the-counter (OTC) or off-exchange. These types of contracts are not centrally cleared and therefore have a higher rate of default risk.
The Option Forward Contract is entered into in order that the customer gets the flexibility to receive/deliver the foreign exchange on any day during a specified period. FEDAI rules require the option period of delivery to be specified as any period not exceeding one month.
A deal contingent forward is a specialised forward foreign exchange (FX) contract. The hedging customer is only obliged to fulfil the contract if a planned major transaction, such as an acquisition, occurs.
A "contingent contract" is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen.
A contingent contract is a legal agreement in which the terms and conditions only apply or take effect if a specific event occurs. Essentially, the parties involved agree to perform actions or obligations based on the occurrence or non-occurrence of a particular event in the future.
While a forward commitment contains an obligation to carry out the transaction as planned, a contingent claim contains the right to carry out the transaction but not the obligation. As a result, the payoff profiles between these derivatives vary, and that affects how the contracts themselves trade.
Forward Contracts can broadly be classified as 'Fixed Date Forward Contracts' and 'Option Forward Contracts'. In Fixed Date Forward Contracts, the buying/selling of foreign exchange takes place at a specified future date i.e. a fixed maturity date.
