Business Glossary

contract to buy or sell a financial instrument at a specific price in a specified future month. There is a relationship between the price of the contract and the interest rate the underlying instrument bears; the contract's value decreases as market interest rates increase and vice versa. Some types of financial instruments used in financial futures contracts are Treasury bills, Treasury notes, Ginnie Maes, and certificates of deposit. Futures contracts are used to speculate on interest rate changes and to hedge investment portfolios against adverse movements in interest rates. Currency futures, a form of financial futures, are used to speculate on foreign exchange rates and to hedge currency values. These contracts are supervised by the Commodities Futures Trading Commission.

contracts in which sellers promise to deliver a given commodity by a certain date at a predetermined price. Price is agreed to by open outcry on the floor of the commodity exchange. The contract specifies the item, the price, the expiration date, and a standardized unit to be traded (e.g., 50,000 pounds). Commodity contracts may run up to one year. Investors must continually evaluate the effect of market activity on the value of the contract. While the futures contract mandates that the buyer and seller exchange the commodity on the delivery date, the contract may be sold to another party prior to the settlement date. This may occur when the trader wants to realize a profit now or limit the oss. Investors engage in commodity trading in the hope of high return rates and inflation hedges.

purchase or sale of a specific quantity of a commodity, government security, foreign currency, or other financial instrument at the current or spot price, with delivery and settlement at a specified future date. Because it is a completed contract-as opposed to an options contract, where the owner has the choice of completing or not completing-a forward contract can be a cover for the sale of a futures contract.

exchange where futures contracts and options on futures contracts are traded. Exchanges may trade commodities, financial derivatives, or a combination of the two, as well as futures and options on indices and equity products. The major exchanges in the U.S. are the New York Board of Trade and its subsidiaries, the coffee, sugar, and cocoa exchange, finex, New York Cotton Exchange and New York Futures Exchange; New York Mercantile Exchange; Chicago Board Of Trade; chicago mercantile exchange; Kansas City Board of Trade; and Minneapolis Grain Exchange.

International futures markets from around the world are also described elsewhere in this Dictionary, including: eurex; Hong Kong Futures Exchange; International Petroleum Exchange; London International Financial Futures and Options Exchange (LIFFE); London Metal Exchange; MATIF; Montreal Exchange; Sydney Futures Exchange (SFE).

commodities market where futures contracts in financial instruments or real commodities (wheat, soybeans) are traded. Stock and bond indexes and options also are traded on these exchanges.

Major financial futures exchanges around the world are the following: Chicago Board of Trade; Chicago Mercantile Exchange/International Monetary Market; Commodity Exchange Inc., New York; Mid-America Commodity Exchange Inc., Chicago; New York Futures Exchange; Sydney Futures Exchange, Sydney, Australia; the International Futures Exchange (Bermuda) Ltd.; Financial Futures Market, Montreal Stock Exchange, Montreal, Quebec; Toronto Stock Exchange Futures Market; Winnipeg Commodity Exchange; London International Futures Exchange; London Metal Exchange; Hong Kong Commodity Exchange; the Gold Exchange of Singapore; and the Tokyo International Financial Futures Exchange.

1. ability or right to choose a certain alternative.
2. ability or right to choose a certain alternative.

A put option on a security (such as stock, commodity, or stock index) is an option to sell 100 shares of the underlying security at a specified price for a given period of time, for which the option buyer pays the seller (writer) a price, termed a premium. A call is the opposite of a put and allows the owner the right to buy 100 shares of the underlying security from the option writer at a specified price for a given period of time.

An Employee Stock Option is the option granted to key employees to buy company stock at a below-market price.

purchase or sale of a specific quantity of a commodity, government security, foreign currency, or other financial instrument at the current or spot price, with delivery and settlement at a specified future date. Because it is a completed contract-as opposed to an options contract, where the owner has the choice of completing or not completing-a forward contract can be a cover for the sale of a futures contract.