Which One of the Following Is a Difference Between a Forward

question 1

Multiple Choice

Which one of the following is a difference between a forward contract and a futures contract?

• A)Forward contracts are based on commodities while futures contracts are based on financial instruments.
• B)The price of the asset exchanged is determined when a forward contract is entered while the price is set on the exchange date for a futures contract.
• C)A forward contract is a formal agreement while a futures contract is an informal agreement.
• D)Futures contracts are managed through an organized exchange while forward contracts are not.
• E)There are no differences between forward and futures contracts.

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Definitions:

Equilibrium Price

The price at which the quantity of a good or service demanded equals the quantity supplied, meaning there is no excess supply or demand.

Equilibrium Quantity

The amount of products or services available that matches the amount consumers are willing to buy at the equilibrium price in the market.

Equilibrium Point

Point at which quantity demanded equals quantity supplied; where demand and supply curves cross.

Equilibrium Price

The cost at which the amount of a product supplied matches the amount of the product desired.