Explain Why a Forward Contract May Actually Carry More Risk

question 61

Essay

Explain why a forward contract may actually carry more risk than a futures contract.

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Definitions:

Competence

The ability to do something successfully or efficiently, often referring to specific skills or knowledge.

Autonomy

The degree to which an individual has the freedom to make decisions and take actions without external control or influence.

Expectancy Theory

A motivational theory positing that individuals are more likely to perform actions if they expect their efforts to lead to successful outcomes and valuable rewards.

Goal Specificity

The clarity and preciseness of a goal, making it explicit and defined, which can aid in motivating individuals to achieve it.