A forward contract is a financial agreement in which the buyer agrees to pay the seller a predetermined price for a specified quantity of a commodity to be delivered at some point in the future.
Forward contracts allow buyers and sellers to know in advance the price as well as the date in which they will take or make delivery of the goods. This knowledge enables them to plan ahead and ultimately they can save expenses - cutting down storage costs for instance.
Forward contracts are privately negotiated, bilateral agreements and the terms of each contract are non-standardized. They are over-the-counter derivatives closely related to futures contracts but they differ in certain aspects.
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