Which of the Following Statements About Forwards, Futures, and Options

question 38

Multiple Choice

Which of the following statements about forwards, futures, and options is correct?

• A)Forward contracts and futures contracts are economically similar, but vary greatly in how they are traded.
• B)Futures contracts and options contracts are economically similar, but vary greatly in how they are traded.
• C)Forward contracts and options contracts are economically similar, but vary greatly in how they are traded.
• D)Forward contracts, futures contracts, and options contracts are all economically similar, but vary greatly in how they are traded.

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Definitions:

Contract Curve

In economics, it represents the set of optimal points of exchange between two parties, where no further mutual benefit can be achieved through trade.

Edgeworth Box

A graphical representation of the trading possibilities and equilibrium between two individuals with fixed amounts of two goods.

Utility Function

A mathematical model in economics that represents consumer preferences over a set of goods and services, by assigning a utility value for each possible bundle of goods.

Convex Preferences

Preferences that express a consumer's desire for diversified bundles of goods over extreme bundles, depicted graphically as convex indifference curves.