Difference between Forward Contract and Future Contract – 10 Major Differences | Finance

Difference between Forward Contract and Future Contract

Difference between Forward Contract and Future Contract

What is forward contract and future contract with examples?

Forward Contract is a private agreement between two parties where one party agrees to buy and sell the underlying asset or commodity at a specified price on a specific future date. In simple words, we can say that a forward contract is one of the simplest forms of derivatives where the contract value depends on the spot or market price of the underlying asset.

A future contract is a contract generally made on the trading floor of the future in which the parties agree to exchange the asset for cash at a fixed price and at a future specified date. A futures contract is standardized in terms of the quantity, date, and delivery of the item.

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Indirect Finance – Difference between Direct and Indirect Finance | Financial Management

Difference between Direct and Indirect Finance

Finance is the study of how money is managed and the actual process of acquiring needed funds. Both channel funds from saver-lenders to who borrows money. Direct Finance takes place between an ultimate lender and an ultimate borrower, with no intermediary involved in it.

It takes place between lenders and borrowers with financial intermediaries involved ie; one between lenders and financial intermediaries, and another between financial intermediaries and borrowers.

Financial intermediaries are the financial institutions through which savers can indirectly provide funds to borrowers. An agent who buys and sells securities from inventory is called a dealer. Direct Finance is riskier as compared to it.

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Disadvantages of Preferred Stock – 5 Major Disadvantages | Corporate Finance

Disadvantages of Preferred Stock

What do you mean by preferred stock?

Preferred Stock which is also called preference share is a hybrid security with features of both debt and common stock which entitles the holder to pay a fixed dividend. Preferred shares generally have a dividend that must be paid out before dividends to common shareholders, and the shares usually do not carry voting rights.

It represents a long term source of financing. In between the common stock and long term debt, it holds an intermediate position regarding claim on assets and dividend payment. One of the thing that should be noted is that nonpayment of preference dividends does not force the company into bankruptcy and dividend is paid out of after-tax profit.

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