One of the Limitations of a Forward Contract Is That

question 47

Multiple Choice

One of the limitations of a forward contract is that:

• A) it is very difficult to frame and understand the agreement.
• B) the seller cannot be sure of the amount she will receive on settlement date.
• C) it is costly to find a willing counterparty.
• D) the prices in the forward market are highly volatile.

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Definitions:

Cognitive Dissonance

A psychological phenomenon where there is a feeling of uncomfortable tension which comes from holding two conflicting thoughts in the mind at the same time.

Carryover Effect

A phenomenon where the effect of a previous condition persists and influences performance in subsequent conditions in a study.

Self-Serving Bias

A cognitive bias where individuals attribute their successes to internal factors and their failures to external factors.

Negative Wording

Phrasing questions or statements in a survey or test in a way that assumes a negative outcome, which can influence responses.