Financial Contracts
Each problem that I solved became a rule, which served afterwards to solve other problems.
—René Descartes, Le Discours de la Méthode
To provide a foundation for the rest of this book, this chapter defines the terminology and discusses the basics of financial contracts.
What Is a Contract?
A contract is a binding agreement between two or more parties to exchange specified goods or services on specified terms. At least two parties must be engaged if there is to be a valid contract: a party that proposes something and a party that accepts that something (Figure 3-1). An agreement to sell and buy a particular product or service ...
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