Distinguish between the following: Spot contract and Forward contract.

In a spot contract, at least one component, i.e. either the price or the goods/services is tendered at the time of the contract. In a forward contract, both the components are exchanged at a specified future date. In a spot contract, both the parties transact on the basis of their present capability. The buyer purchases according to his ability to pay for the goods or services and the seller sells according to his present ability to deliver the goods or services. In a forward contract, a leveraging of capabilities is involved. Since no down payment is involved, the buyer might contract to buy a larger number of goods or services, expecting to derive some benefits from the perceived price differential between the spot price and the likely price at the time of maturity of the forward contract. Also the seller, feeling that a larger number of goods shall be available at the contracted price at the time of maturity, agrees to sell a far larger number of goods. In a spot contract, execution of the contract is more or less certain because both the components, i.e. money and goods are available. Even through the transaction does not pass through a regulated delivery and payment mechanism yet the chances of default are very less. The problems of payment and delivery get magnified in the case of a forward contract.