Economics 2162A/B Lecture Notes - Lecture 6: Chicago Mercantile Exchange, Spot Contract, Futures Contract
2 May 2016
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Document Summary
A futures contract is like a forward contract. It specifies that a certain currency will be exchanged for another at a specified time in the future at prices specified today. A futures contract is different from a forward contract. Futures are standardized contracts trading on organized exchanges with daily resettlement through a clearinghouse. A buyer of a futures contract (one who holds a long position) in which the settlement price is higher than the previous day"s settlement price has a positive settlement for the day. Since a long position entitles the owner to purchase the underlying asset, a higher settlement price means the futures price of the underlying asset has increased. Consequently, a long position in the contract is worth more. Calc initial* of contract and put into marginal account. At end of day, depending on change in rate, add or subtract to margin account based on prof/loss .
