Issues Relating to Futures Contract

Introduction As far as a given good is concerned, Future contracts fulfill dual roles of cost discovery and jeopardy management(Investopedia, p.1 2011). Producers find futures to be useful as he/she is able to ascertain the going price of commodities at both point in time, and can indeed decide amongst competing commodities. For the consumer, Futures allows him/her to queer a sense of what the commodity might be selling for at a future date.(Investopedia, 2011). Benefits to the Firm in using the Futures Markets According to remove(2009), trades in futures contract are withal important to exporters as they are given the privilege of an fling indication of the price that might prevail. These exporters are then able to to quote possible prices. This ability to quote realistic prices enables them to compete more effectively. With the export contracts, exporters are able to deflect their risk by taking advantage of the futures market. According to Hull (2009), other(a) advantages and benefits of futures contract/trading would include: 1. It stabilizes prices during times of immense price instability or fluctuations.. 2. Allows for a national price integration. 3. Leads to crossing development, expansion, and manufacture. 4.

Leads to an equilibrium in the product supply and demand; and thus an optimum market. 5. Encourages competition and acts as a price barometer to farmers and other trades. Futures trading can be abused by unethical traders. To forestall and safeguard against such behaviors, regulators have placed limits on open positions, limits on price fluctuations, and imposed special adjustment deposits, etc (Hull, 2009). Functions and Importance of the Clearinghouse The Clearing House role is to intermediate between parties by guaranteeing the performance of the parties to each transactions (Hull, 2009, p.29). Members of the Clearinghouse pay membership fees, while non-members brokers that wish to transact business with the... If you want to get a full essay, order it on our website: Orderessay

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