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:

Income Inelastic

A characteristic of a good whose demand does not significantly change as the income of consumers changes.

Price Inelastic

Describes a situation in which the demand for a good or service is relatively unresponsive to changes in price.

Price Inelastic

Describes a situation where the quantity demanded of a good does not significantly change when its price changes.

Agricultural Products

Are commodities produced through farming and agriculture, including food, fibers, and raw materials.