REFILE-FACTBOX-Derivative instruments used in coal trading

martes 8 de diciembre de 2009 00:42 CET
 

(Refiles to fix dateline)

Dec 7 (Reuters) - Coal is now a fully commoditised product that is traded actively in the United States, Europe and the Asia-Pacific region. Financial derivatives contracts are also traded in large volumes by power utilities, coal producers, trading companies, and banks to hedge or lock in profits.

The following derivative instruments are traded in the market:

FIXED PRICE FORWARD CONTRACT

This is a standardised contract used to sell and buy physical coal whereby delivery is deferred beyond the transaction date. Although the delivery is made in the future, the price is determined on the initial trade date.

Forward contracts can be used as instruments to buy or sell physical coal as well as a financial instrument for hedging or speculating purposes.

INDEX-LINKED FORWARD CONTRACT

A forward contract by which the price is not fixed at some specific level but is linked to an agreed price index during the period of delivery of coal.

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