Explain the Key Differences Between an Options Contract and a Forward

question 28

Essay

Explain the key differences between an options contract and a forward contract. For each contract,
give an example of how it might be used by a firm.

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Definitions:

Deposits In Transit

Funds that have been sent to a bank but have not yet been recorded in the bank's records, leading to a discrepancy between the company’s cash records and bank statement.

Outstanding Checks

Checks recorded in the issuer's financial records that haven't been processed or cashed by the banking institution yet.

Bank Statement

A record provided by a bank that summarizes all transactions in an account for a specific period of time, showing all deposits, withdrawals, and current balance.

Debit Memorandum

A debit memorandum is a document issued by a buyer to a seller, indicating a return of goods or a request for a price reduction, essentially serving as a formal request to reduce the amount owed.