The Risk of Default Is Larger with Futures Contracts Than

question 45

True/False

The risk of default is larger with futures contracts than with forward contracts largely because the value of the futures contract is marked-to-market daily, resulting in a higher chance that one of the individuals will be unable to make the required deposit.

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Definitions:

Uncovered Interest Parity

A theory in finance which posits that the disparity in interest rates across two nations matches the anticipated shift in exchange rates between their respective currencies.

International Fisher Effect

An economic theory predicting that the difference in nominal interest rates between two countries is equal to the expected change in their exchange rates over a specific period.

Relative Economic Conditions

Economic circumstances in one region or country as compared to another.

Long-Run Exposure

A type of currency risk faced by firms that operate internationally over an extended period.