Explain forward contracts and options

Q: Explain forward contracts and options

This is a Software Engineering Fundamentals interview question from Morgan Stanley for Data Scientist roles. View the full question and solution on PracHub.

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Question

In a finance-focused technical interview, you are asked to explain two basic derivative instruments:

What is a forward contract?
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.

Explain forward contracts and options

Solution

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