| Term | Forward contract | | Definition | A forward contract is an unconditional financial contract that represents an obligation for settlement on a specified date; at the inception of the contract, risk exposures of equal market value are exchanged and hence the contract has zero value; some time must elapse for the market value of each party’s risk to differ so that an asset (creditor) position is created for one party and a liability (debtor) position for the other; forward contracts are typically, but not always, settled by the payment of cash or the provision of some other financial instrument rather than the actual delivery of the underlying item and therefore are valued and traded separately from the underlying item. | | Paragraphs | 11.37. |
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