The Difference Between a Forward Contract and a Futures Contract

question 134

Multiple Choice

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

• A) The fact that the futures contract does not obligate the buyer while the forward contract does.
• B) The fact that a forward contract must be paid in full at the onset while the futures contract does not.
• C) The daily resettlement feature found in futures contracts but not in forward contracts.
• D) The fact that a futures contract is a form of an option contract and a forward contract is not.
• E) The fact that the forward contract is marked-to-the-market and the futures contract is not.

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Definitions:

Income Statement

A financial document that shows a company's revenues and expenses over a specific period, culminating in the net income or loss for that period.

Balance Sheet

A financial statement that presents the financial position of a company at a specific point in time, showing assets, liabilities, and shareholders' equity.

Inventory Costing Method

A method used to assign costs to inventory items, such as FIFO (First-In, First-Out), LIFO (Last-In, First-Out), or weighted average cost.

LIFO

Last In, First Out, an inventory valuation method where the most recently produced or acquired items are sold first, affecting the cost of goods sold and inventory value.