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:

Pooling of Interests Transaction

A method used in accounting for business mergers in which the assets and liabilities of the merging companies are combined using their book values.

Book Value

The net value of a company's assets minus its liabilities, representing the equity value of the company from an accounting perspective.

Fair Value

The price at which an asset could be bought or sold or a liability settled, between knowledgeable, willing parties in an arm's length transaction.

Variable Interest Entity

A legal entity in which an investor holds a controlling interest that is not based on the majority of voting rights.