The Difference Between a Futures Contract and a Forward Contract

question 9

Multiple Choice

The difference between a futures contract and a forward contract is the:

• A) Payoff profile of the buyer.
• B) Payoff profile of the seller.
• C) Settlement process.
• D) Use of the spot rate versus the contract rate at settlement.
• E) Ability to write a futures contract, but not a forward contract, on an exchange rate.

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Definitions:

Weighted Average Method

The weighted average method calculates the cost of inventory based on the average cost of all similar items in inventory, adjusted for the quantity of items.

Direct Labor

Labor costs associated with employees who are directly involved in the manufacturing process of a product.

FIFO Method

"First In, First Out" method of inventory valuation where the oldest inventory items are recorded as sold first, potentially impacting cost of goods sold and ending inventory valuation.

Equivalent Unit

A concept used in cost accounting to express the amount of materials, labor, and overhead costs assigned to finished units and units in progress as a total number of finished units.