Futures Contracts Are Similar to Forward Contracts in That They

question 26

Multiple Choice

Futures contracts are similar to forward contracts in that they both

• A) Have volatile price movements and strong interest from buyers and sellers.
• B) Give the holder the option to make a transaction in the future.
• C) Have similar liquidity.
• D) Have similar credit risk.
• E) None of the above.

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Definitions:

S&P 500

A benchmark tracking the performance of 500 major U.S. companies listed on stock exchanges.

Diversification Benefit

The reduction of risk achieved by allocating investments among various financial instruments, industries, or other categories to maximize return.

Correlation Coefficients

A statistical measure that describes the extent to which two variables change together.

Systematic Risk

Systematic risk refers to the risk inherent to the entire market or market segment, often influenced by factors like economic, political, and social changes.