What Are the Shortcomings of Futures, When Compared to Forward

question 9

Essay

What are the shortcomings of futures, when compared to forward con- tracts?

---

Definitions:

Straight-Debt Value

This refers to the value of a company's bonds or debt if no conversion option exists, viewed as traditional fixed-income securities.

Convertible Bonds

Bonds that can be converted into a predetermined amount of the issuing company's shares, usually at the discretion of the bondholder.

Par Value

The face value or nominal value of a stock or bond, set by the issuing company.

Credit Derivatives

Financial instruments used to manage exposure to credit risk by transferring it from one party to another without transferring the underlying assets.