Difference between revisions of "Account for Forward Contracts"
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A forward contract is a type of derivative financial instrument that occurs between two parties. The first party agrees to buy an asset from the second at a specified future date for a price specified immediately. These types of [[:Category:Contracts and Legal Agreements|contracts]], unlike futures contracts, are not traded over any exchanges; they take place over-the-counter between two private parties. The mechanics of a forward contract are fairly simple, which is why these types of derivatives are popular as a hedge against risk and as speculative opportunities. Knowing how to account for forward contracts requires a basic understanding of the underlying mechanics and a few simple journal entries. | A forward contract is a type of derivative financial instrument that occurs between two parties. The first party agrees to buy an asset from the second at a specified future date for a price specified immediately. These types of [[:Category:Contracts and Legal Agreements|contracts]], unlike futures contracts, are not traded over any exchanges; they take place over-the-counter between two private parties. The mechanics of a forward contract are fairly simple, which is why these types of derivatives are popular as a hedge against risk and as speculative opportunities. Knowing how to account for forward contracts requires a basic understanding of the underlying mechanics and a few simple journal entries. | ||
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== Steps == | == Steps == | ||
=== Accounting for Forward Contracts === | === Accounting for Forward Contracts === | ||
