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Finance & Accounting
Pages 3 (753 words)
Short and long positions Name: Institution: Forwards and options According to Steven (2000: 2), forwards are mainly agreements made to sell or purchase a commodity at a certain period in the future for a specified price agreed on today by different parties. Options refer to the agreement between two or more parties who want to buy or sale a commodity at a certain future period at a price that determined today…
This is due to firms having incentives to predict their productions by use of the forward contracts. Short and long positions Forwards and options are contracts for sale and purchase of commodities between two parties: the sellers and the buyer. The party agreeing to the sale or possible selling of the commodity in the future at that price is the seller or the short. The other party that is agreeing to purchase or possible purchase of the product in the future is the buyer or the long. To assume the short positions means to be assuming the position of the seller. The seller hopes that the price worth of the asset will rise over the stipulated time of exchange to more than the value set at the time of agreement for purchase. The assuming of the long positions means to be assuming the position of the buyer. The buyer hopes that the price worth of the commodity will fall over the stipulated time of exchange to less than the price valued at the period of agreement for sale. The contract in itself costs and limits nothing to enter to but it offers a view and privileged risk of the positions the shot and long hold (Keith, 1997: p. 14). ...
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