An Important Reason for Trading a Futures Contract Rather Than

question 190

Multiple Choice

An important reason for trading a futures contract rather than an FRA is:

• A) The expense of settling an FRA
• B) The reduced counterparty risk on a futures exchange
• C) The reduced basis risk on futures
• D) The superior interest rate risk on FRAs

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Definitions:

Variable Cost

Costs that vary in direct relation to a business's operations, like expenses for raw materials or manufacturing supplies.

Activity Decreases

Reductions in the volume or intensity of activities, often leading to lower costs or changes in operational strategies.

Cost Estimation

The process of predicting the amount of resources, especially money, time, and labor, necessary to complete a project or produce a product.

Strong Correlation

A statistical relationship between two variables where a change in one is strongly associated with a change in the other.