A Key Characteristic of Futures Contracts That Recommends Their Use

question 98

Multiple Choice

A key characteristic of futures contracts that recommends their use over forwards contracts is:

• A) futures are traded on exchanges and marked-to-market.
• B) futures contracts allow flexibility in delivery dates.
• C) futures are traded in liquid markets and allow netting of positions.
• D) all of the given answers.

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Definitions:

Probability Distribution

A mathematical function that gives the likelihoods of various possible results in an experiment.

Binomial Distribution

A probability distribution that describes the number of successes in a fixed number of independent trials, with each trial having only two possible outcomes.

Binomial Random Variable

A type of random variable that follows the binomial distribution, representing the number of successful outcomes in a fixed number of trials.

Binomial Experiment

A statistical experiment that satisfies four conditions: fixed number of trials, independent trials, only two possible outcomes, and constant probability of success.