International Finance

A forward contract is signed based on the agreement between the two parties regarding the price, the quality and the quantity, as well as the delivery date of the underlying asset. They are not standardised. However, in futures contract the transaction is standardised in terms of the quantity, the quality, and the delivery date. There are some disadvantages of forward contract that can be overcome by futures. Briefly explain on how futures contracts overcome these THREE (3) problems of forward contracts.

1. Multiple coincidence of needs.

2. Potential for price squeeze.

3. Counterparty risk.

(b) State FIVE (5) key features of forward and futures contracts.