Which of the Following Is NOT an Attribute of a Forward

question 41

Multiple Choice

Which of the following is NOT an attribute of a forward of futures contract?

• A) Because futures contracts are between anonymous parties, there is a risk of default as each party may not be in a position to assess the credit worthiness of the other party .
• B) Since a forward contract is only a customary agreement between non-anonymous parties, there is a risk that one party may default if future prices deviate materially from the contracted price.
• C) By alternatively using a future contract rather than a forward contract, the risk of default is eliminated.
• D) In the case of a forward contract where the contract is negotiated with a known party, a firm may be disclosing strategic information regarding its risk exposure.

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Definitions:

Specific Customer

A particular or individual client to whom products or services are sold or provided.

Allowance Method

An accounting technique that estimates and deducts accounts receivable that may not be collectible, to more accurately represent a company's financial position.

Net Realizable Value

The estimated selling price of goods minus the cost of their sale or disposal, used in valuing inventory to reflect the net amount that can be realized.

Allowance for Doubtful Accounts

An estimation of future uncollectible amounts from customers, reducing the accounts receivable balance to a more realistic figure.