What Is a Difference Between a Forward Contract and a Future

question 60

Multiple Choice

What is a difference between a forward contract and a future contract?

• A)The settlement price of a forward contract is fixed over the life of the contract but in a futures contract is marked to market daily.
• B)Forward contracts are normally arranged through an organized exchange,while most futures contracts are OTC contracts.
• C)Both are essentially the same,except for trading volumes which are higher for futures contracts.
• D)Both are essentially the same,except for the fact that the terms of a forward contract is set by the exchange,subject to the approval of the Commodity Futures Trading Commission (CFTC).

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Definitions:

Contractual Capacity

The threshold mental capacity required by law for a party who enters into a contract to be bound by that contract.

Contract

A contract is a legally binding agreement between two or more parties, enforceable by law.

Consideration

The value (such as money, service, or goods) exchanged between parties in a contract which makes the agreement legally binding.

Bilateral Contract

An agreement involving two parties where each promises to perform an act in exchange for the other's act.