A private agreement to buy or sell a given quantity of an asset such as a currency, interest rate or commodity at a specified future date at a specified price is called:
Click on the arrows to vote for the correct answer
A. B. C. D.D
The correct answer to the question is C. Future Contract.
A future contract is a legally binding agreement between two parties to buy or sell a specific quantity of an underlying asset, such as a currency, interest rate, or commodity, at a predetermined future date and at a predetermined price. It is a standardized contract traded on regulated exchanges, such as the Chicago Mercantile Exchange (CME) or the New York Mercantile Exchange (NYMEX).
Here's a more detailed explanation of each option:
A. Forward investment plan: This term does not accurately describe the given scenario. A forward investment plan usually refers to an individual's or organization's strategy or plan for investing in various financial instruments, including stocks, bonds, mutual funds, or real estate. It does not specifically relate to the agreement described in the question.
B. Future agreement plan: This option is not the correct answer. While it includes the term "future agreement," it does not accurately describe the type of agreement mentioned. It is important to note that the term "future agreement" is not commonly used in finance and investment contexts.
C. Future Contract: This is the correct answer. A future contract, as described above, is a binding agreement to buy or sell an underlying asset at a specified future date and at a predetermined price. It is a standardized contract traded on regulated exchanges and is commonly used by individuals and organizations to hedge against price fluctuations, speculate on price movements, or gain exposure to various asset classes.
D. Forward Contract: This option is not the correct answer. While a forward contract shares similarities with a future contract, there are notable differences. A forward contract is a private agreement between two parties to buy or sell an asset at a future date and at a price determined at the time of the agreement. Unlike future contracts, forward contracts are not standardized or traded on exchanges, making them less liquid and more customizable. Additionally, forward contracts carry counterparty risk since they lack the regulatory oversight found in futures markets.
In summary, the private agreement described in the question, where parties agree to buy or sell an asset at a specified future date and price, is called a future contract (Option C).