Futures Contracts


After completing this chapter, you will be able to answer the following questions:

  • What is a futures contract?

  • What are the differences between a futures contract and a forward contract?

  • What is the role of a clearing corporation in futures exchanges?

  • What is meant by margin and marking-to-market in futures markets?

  • How to understand futures quotes?

  • How can one arbitrage between futures markets and spot markets?

  • How are futures contracts traded?

BOX 5.1 The Birth of Currency Futures Markets

In November 1967, Milton Friedman, a professor, believed that the Bank of England was likely to devalue the British pound. He approached a Chicago bank to borrow money in order to make gains when the value ...

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