What is a “forward” transaction?

A: In a forward contract, two parties irrevocably agree to settle a trade at a future date,
for a stated price and quantity. No money changes hands at the time the trade is agreed
upon.
Suppose a buyer L and a seller S agree to do a trade in 100 grams of gold on 31 Dec
2001 at Rs.5,000/tola. Here, Rs.5,000/tola is the “forward price of 31 Dec 2001 Gold”.

The buyer L is said to be long and the seller S is said to be short.
Once the contract has been entered into, L is obligated to pay S Rs. 500,000 on 31
Dec 2001, and take delivery of 100 tolas of gold. Similarly, S is obligated to be ready to
accept Rs.500,000 on 31 Dec 2001, and give 100 tolas of gold in exchange.