Advantages/Importance of Forward Contract

The advantages of forward contracts are as follows:

  1. The contract can be tailored to the user’s exact requirements-with quantity to be delivered, date, and price all flexible.
  2. The trader will know in advance how much money will be received or paid.
  3. Payment is not required until the contract is settled.
  4. Forward contracts can be matched for both the time period and cash size of price exposure.
  5. If the price of raw materials does increase, the forward contracts offer full-hedging.

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