Some financial professionals consider forward contracts another kind of derivative security. Why do you think this is so?
A derivative security is a contract whose value is tied to some financial market security, rate, or price. These financial professionals see forward contracts as fitting within the definition of a derivative, since the value of a forward contract depends on the interest or exchange rate it is connected to. For example, a company which has signed a forward exchange contract has the obligation to purchase a foreign currency at a specified exchange rate. Should the foreign currency become more expensive, the forward contract would become more valuable and vice versa.
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