Advance Commitment

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DEFINITION of 'Advance Commitment'

A promise or agreement to take some future action. For example, a promise by a buyer to purchase goods at a price set beforehand is an advance commitment.

BREAKING DOWN 'Advance Commitment'

In financial markets, parties may make an advance commitment to sell an asset before they own it; the seller often buys a futures contract to offset the risk of a price increase at the time of purchase. In banking, a financial institution will make an advance commitment to a borrower to lend funds on a specified date on agreed-upon terms.

Note that in mortgage banking an advance commitment is called a "standby commitment."

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RELATED FAQS
  1. What is the difference between forward and futures contracts?

    Fundamentally, forward and futures contracts have the same function: both types of contracts allow people to buy or sell ... Read Full Answer >>
  2. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  3. Why do companies enter into futures contracts?

    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>
  4. What does a futures contract cost?

    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>
  5. What are the main risks associated with trading derivatives?

    The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>
  6. How can an investor profit from a fall in the utilities sector?

    The utilities sector exhibits a high degree of stability compared to the broader market. This makes it best-suited for buy-and-hold ... Read Full Answer >>

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