Future Contracts Case Study Ricardo International Stands Essay

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Future Contracts Case Study

Ricardo International stands to benefit from its engagements in the futures market because it can hedge risk. The futures market is also a major financial hub that provides an outlet for intense competition among the buyers of its products like the computer hardware industry and the sellers that compete with them in their market niche (Boudreault, 2010). The futures market provides them with a center to manage price risks. Ricardo International and the computer hardware companies can enter into a futures contract, where Ricardo International secures a price for its products that both of them believe is fair. Ricardo International becomes the holder of the short position while the computer hardware manufacturers become the holder of long position.

Futures Contract market definitely has economic importance to Ricardo International in the sense that it has vital market information and sentiment indicators. The market can help this business enterprise to determine its prices based on today's and tomorrow's estimated amount of supply and demand through price discovery (Heakal, 2013).

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Futures market is also important to Ricardo International because it is a forum where they can reduce risk when making purchases. Risks are reduced because prices are pre-set. This makes them know how much they will need to buy or sell.

Mark to market is an accounting practice by which companies value and report their financial instruments at market price. It is the price at which an asset is trading at in a public exchange. The concept id used for level 1 and level 2 assets. Level 1 asset are actively traded exchanges while level two assets are not actively traded (Heakal, 2013). However, it is easy to determine their prices based on prices of other similar assets like the bonds of comparable quality.

The Commodity Futures Trading Commission is an independent agency of the United States government whose….....

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