Financial contract definition
A financial contract is a legally binding document between at least two parties that defines and governs the parties’ rights and responsibilities under the agreement.
A financial contract is legally enforceable when it meets the law’s requirements and approval. It usually involves exchanging money, goods, services, or promises to trade any of these products.
An example of a financial contract
Futures and options are two examples of financial contracts. Two parties are involved in both.
A futures contract is a standard legal agreement to buy or sell an asset at a predetermined price at a specified future time. The transaction is normally a financial instrument or commodity. The predetermined price agreed by both parties to buy or sell the security is the forward price. The specified future time when delivery and payment occur is the delivery date.
An options contract is defined as a promise which meets the requirements for the formation of a contract and limits the promisor's power to revoke an offer. Option Contracts are Exchange Traded or Over the Counter.