A Call Option is a derivative security that gives the owner the right, but not the obligation, to buy an asset at a fixed price for a specified period of time.
What's fixed price?
- In discrepancy to cost- plus contracts, fixed- price contracts don't predicate the contract payment on the volume of coffers or time used by the contractor.
- Military and government contractors constantly employ fixed- price contracts to shift threat to the seller and keep costs in check.
- Fixed- price contracts have sometimes failed in the history when they've been used for new systems involving experimental or evolving technology because unanticipated charges exceeded the contractor's capability to absorb the overruns.
- Despite this, these contracts are still extensively used.
- Fixed- price agreements constantly serve stylish when costs are easily known beforehand.
What are the benefits of fixed pricing?
- An agreement with a fixed price offers pungency for both the buyer and the dealer as well as stability for the duration of the contract.
- A buyer can worry that a unforeseen increase in the price of a good or service will negatively impact his business objects.
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