Abstract

This case study is about the dilemma faced by Manohar, a wheat farmer who wanted to hedge his price risk. Unable to lock the price using a traditional Forward contract, he is exploring the possibility of a Futures contract on a commodity stock exchange. The case study introduces Forwards and Futures while going deeper into exploring the trading process and other requirements of a Futures contract.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Understand what a Futures contract is
• Understand what a Forward contract is
• Understand the difference between Forward and Futures contracts
• Understand how a Futures contract is used to hedge risk
• Analyze the trade mechanics of the Futures market

Keywords

Futures contract, Forward contract, Clearing house, Contract Size, Daily Settlement, Margin, Physical Delivery Settlement, Offsetting, Cash Settlement, Exchange Of Futures For Physicals, Price Discovery, Arbitraging, Speculation, Hedging, CME Group