Which of the Following Is a Major Difference Between Forwards

question 31

Multiple Choice

Which of the following is a major difference between forwards and futures?

• A)Forwards are marked to market, while futures are not.
• B)Futures are tailor made, while forwards are standardised.
• C)The default risk of futures is significantly reduced by the futures exchange guaranteeing to indemnify counterparties against credit risk, while this is not the case for forwards.
• D)Forwards are marked to market, while futures are not, futures are tailor made, while forwards are standardised and the default risk of futures is significantly reduced by the futures exchange guaranteeing to indemnify counterparties against credit risk, while this is not the case for forwards.

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Definitions:

Good X

A symbolic term often used in economics to represent any generic commodity or product under consideration for analysis.

Units

Measurements or quantities ascertained by established standards used for trading, scientific experiments, and other purposes.

Utility Function

Refers to the model used by economists to estimate the level of utility or satisfaction a consumer derives from the consumption of goods and services, highlighting consumer preferences.

Budget Constraint

A representation of all the combinations of goods and services a consumer can purchase with their income at given prices.