Explain forward contracts and options
Company: Morgan Stanley
Role: Data Scientist
Category: Software Engineering Fundamentals
Difficulty: easy
Interview Round: Technical Screen
In a finance-focused technical interview, you are asked to explain two basic derivative instruments:
1. **What is a forward contract?**
2. **What is an option?**
Describe each instrument clearly, including:
- The parties' rights and obligations.
- The underlying asset and price.
- Typical use cases (e.g., hedging, speculation).
- Key differences between a forward contract and an option.
Overview: This question evaluates understanding of financial derivatives—specifically forwards and options—assessing competency in financial instruments, contractual rights and obligations, pricing concepts, and how these concepts inform data-driven modeling for a Data Scientist role.