Forward contract Forward contract. Forward contract is an agreement made directly between two parties to buy or sell an asset on a specific date in the future, at the terms decided today. Forwards are widely used in commodities, foreign exchange, equity and interest rate markets. Let us understand with the help of an example. Assume on May 9, 2020 you wanted to purchase gold from a goldsmith. The market price for gold on May 9, 2020 was Rs. 30,425 for 10 gram and goldsmith agrees to sell you gold at market price. You paid him Rs. 30,425 for 10 gram of gold and took gold. This is a cash market transaction at a price (in this case Rs. 30,425) referred to as spot price. Now suppose you do not want to buy gold on May 9, 2020, but only after 1 month. Goldsmith quotes you Rs. 30,450 for 10 grams of gold. You agree to the forward price...
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