Counterparty Risk in a Futures Contract Is Lower Than in a Forward

question 21

Multiple Choice

Counterparty risk in a futures contract is lower than in a forward contract because

• A)The participants in the futures market are better funded.
• B)The futures contract is marked-to-market on a daily basis.
• C)The futures exchange bears the counterparty risk.
• D)The forward market does not charge commissions that may be used to offset the risk of counterparty failure.

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Definitions:

Depository Institutions

Financial institutions that accept deposits from individuals and provide loans.

Fed Charges

Fees or interest rates set by the Federal Reserve, often in the context of lending to financial institutions.

Board of Governors

The leading body of the Federal Reserve System, overseeing the Federal Reserve Banks and setting monetary policy in the United States.

Appointed

Selected or designated for a position or duty by an authority, rather than by election or competition.