SWAP $/$ FUTURES $/$ HEDGING $/$ FORWARD contract is an agreement in which one party agrees to buy an item at a specific price on a specific future date and the other party agrees to sell the item at the agreed$-$upon terms. Physical delivery occurs. SWAP $/$ FUTURES $/$ HEDGING $/$ FORWARD contracts are standardized contracts traded on exchanges and are $$marked to market$$ daily, but where physical delivery of the underlying asset is never taken. Originally, futures and forward contracts were used for commodities such as wheat, where farmers would sell forward contracts to millers, enabling both parties to lock in prices and reduce their risk exposure. Commodities contracts are still important; however, today more trading is done in foreign exchange and interest rate futures. Futures contracts are divided into two classes. SWAP $/$ FINANCIAL $/$ SPECULATIVE $/$ COMMODITY futures are contracts that are used to hedge against price changes for input materials. SWAP $/$ FINANCIAL $/$ COMMODITY futures are contracts that are used to hedge against fluctuating interest rates, stock prices, and exchange rates.