Contingent Forward Contract In Travis
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FAQ
Common types of contingent claim derivatives include options and modified versions of swaps, forward contracts, and futures contracts. Any derivative instrument that isn't a contingent claim is called a forward commitment. Vanilla swaps, forward and futures are all considered forward commitments.
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.
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.
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.
CDS contracts are contingent claims with some features of firm commitments. In a CDS contract, the credit protection buyer pays the credit protection seller to assume the risk of loss from the default of an underlying (third-party) issuer.
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.
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.
Record a forward contract on the contract date on the balance sheet from the seller's perspective. On the liability side of the equation, you would credit the Asset Obligation for the spot rate. Then, on the asset side of the equation, you would debit the Asset Receivable for the forward rate.
