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Describe important differences in nature of futures contract

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Nereus Elevation & Storage Ltd. (NES) operates grain elevators in southwestern Ontario. The company ordered £66,000 of grain handling equipment from a Scottish manufacturer on November 1, 2020. The equipment will be delivered on December 15, 2020 and has 30-day terms. On November 15, 2020 NES Ltd.'s treasurer decided to hedge the purchase with a forward contract. The forward rate on November 15 was 1.71 CAD/£. By December 31, the market rate had increased to 1.73 CAD/£, before it fell back to 1.67 CAD/£ on January 15.

Problem (a) NES is contemplating purchasing a futures contract to hedge the price of soybeans for the upcoming season. Describe two important differences in the nature of futures contracts generally, compared to forward contracts (excluding the specifics referenced here such as underlying (i.e., £ vs grain) or the timing (next couple of months vs upcoming season).

Reference no: EM132942543

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