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Differences in Forward Contract, Futures Contract and Options

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Integrative Problems and Virtual Organization Strategy Paper

Resources: Financial Management: Principles and Applications, student Web site, Electronic Reserve Readings, Internet
Prepare response to the following problem:

Integrative Problem Memo Questions 1-4 (Ch. 22) of Financial Management: Principles and Applications

For your job as the business reporter for a local newspaper, you are given the assignment of putting together a series of articles on the multinational finance and the international currency markets for your readers. Much recent local press coverage has been given to losses in the foreign exchange markets by JGAR, a local firm that is the subsidiary of Daedlufetarg, a large German manufacturing firm. Your editor would like you to address several specific questions dealing with multinational finance. Prepare a response to the following memorandum from your editor:

TO: Business Reporter
FROM: Perry White, Editor, Daily Planet
RE: Upcoming Series on Multinational Finance

In your upcoming series on multinational finance, I would like to make sure you cover several specific points. In addition, before you begin this assignment, I want to make sure we are all reading from the same script, as accuracy has always been the cornerstone of the Daily Planet. I'd like a response to the following questions before we proceed:

What are the differences between a forward contract, a futures contract, and options?

Select a Virtual Organization, Kudler Fine Foods. Assume your organization is privately held, wants to expand operations, and is faced with three options for expansion:

Going public through an IPO
Acquiring another organization in the same industry
Merging with another organization

Prepare a paper in which you compare and contrast options and make a recommendation about which strategy the organization must choose. Address the following in your paper:

Opportunities of each approach

There are two separate parts to this assignment. The first part is the questions and the second part is the paper.

Here is the link to the Virtual Organizations - Kudler Fine Foods

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Solution Summary

The solution determines the differences in forward contract, futures contract and options for Kudler IPO or M&A.

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Part 1:
Difference in Future, Forward & Option Contracts

Future, Forward & Option Contracts

The future, forward and option contract has the same characteristics as all allow the people to buy or sell a specific amount of assets at a specific time period. but at the same time there are several differences between all of these.

Differences between future & forward contracts:
Forward contract can be defined as the agreement between two parties that agreed to buy or sell an asset at a point of time in future period at the price agreed today. The forward contract is not standardized as it is not traded in an exchange. There is not a cost for entering in the forward contract. On the other hand, future contract is a standardized contract that includes the standardized quantity & quality at a specified future date at the price agreed today. The future contract includes specific details while the forward contract doesn't include specific details as they are not rigid with stated terms and conditions. The future contracts also include the margin that caused a cost for the people to enter in the future contract (Kolb & Overdahl, 2007).

Difference between options & futures contracts:
The main difference between the future and option contract is related to the obligations put on the buyers or sellers of the contract. The option contracts include the right but not obligation for ...

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