Characteristic of Future Contract
1. Standard Contract
Future contract are unlike forward contract are not
tailor-made instead are standard in term. It is therefore considered not to be
flexible. These contracts are offered in specific price at specific rate.
2. Margin Requirement
Future contract involve the margin minimum payment to cover
the expected loss which may be result due to future contract. Therefore future
contract has immediate cash flow implication unlike forward contract.
3. Execution of Contract
Though it is formal contract however these contract are
normally set off and rarely executed. Organization enters into this contract to
hedge the risk associated with exchange rate.
4. Traded
Future contract are traded in the open market and therefore
are liquid in nature.
