11.   Forward contracts and financial futures contracts perform exactly the same function.

12.   Therefore we would expect a forward contract and a financial futures contract with the same specifications to have the same price.

13.   Commitments arising from forward contracts entered into in the ordinary course of business are not included in the balance sheet.

14.   The set of actively traded futures contracts is very limited in comparison to the almost infinite variety of forward contracts that are struck.

15.   However, the bank can also use an exchange traded futures contract to further reduce its risk in taking on the forward contract.

16.   It could do so if price fluctuations in the asset underlying the futures contract are highly correlated with the risky prospect that is the subject of the forward contract.

17.   On the settlement day the value of the forward contract could be negative since it equals the current price of the stock minus the prearranged forward price.

18.   The bank with which the exporter makes the forward contract must itself hedge its position, otherwise it too will be exposed to currency risk.

19.   Knowing that it is possible to hedge by entering into a forward contract therefore seems to be the thing to do, in conjunction with the proposal just outlined.

20.   The forward contract would mature at the time when it was proposed to change back into sterling from lire.