International Finance Essay Example | Topics and Well Written Essays - 1500 words - 4

International Finance - Essay Example The production cycle will remain running smoothly without experiencing any interruptions. The trend of futuristic deals is more prevalent and traditional in the market that works to sell and purchase financial instruments. The future contracts are more formal in nature and it is often considered unacceptable, if a party wants to break the contract or simply opt not to perform its contractual duties. The disadvantaged party reserves the right to take the matter into a court of law in response to the breach of a future contract (Moosa & Bhatti, 2009). The shares and bonds are purchased with the help of future contracts because it allows the purchaser to hedge against the possibility of higher price of the same instrument at a future date. The seller on the other hand tends to manage the risk of falling prices in the future by securing a deal in the present on a reasonable return rather than waiting for the actual market situation to emerge in the future (Pilbeam, 2010). Another interesting fact should be kept in mind that senior and experienced investors and businessmen do not enter into future contracts due to their formal nature but they tend to use options instead. The options are favored because of their informal nature and they can also be broken by paying modest mutually settled fees. In the case of future contracts, the ramifications of nonperformance are more severe in nature due to strict legality of the contract. Additionally, future contracts are entered by those investors and businessmen who do not want to take the pressure of facing market risks at a specific period of time and therefore, look and plan to safeguard their interests beforehand (Baillie & McMahon, 1989). The investors of abovementioned mindset safeguard their stance against rising prices but they also forego potential benefit that they may reap if the price of the instrument drops in