Question

The Country Farm and the Cookie Maker met today and agreed to exchange wheat six months from now at a price which they negotiated today. This agreement was made between the two firms and did not pass through an organized exchange. Which one of the following best describes this transaction?

Answer 1

Forward contract

Step-by-step explanation:

forward contract is a non-standardized contract between two individuals (the buyer and seller) who agree to buy and sell a good on a future date at a specific price. Unlike the future contract, forward contract is not standardized and parties can easily breach agreements made because it is traded over the counter thus the risk is high.