A Major Difference Between a Forward and a Futures Contract

question 40

Multiple Choice

A major difference between a forward and a futures contract:

• A)is the forward has less credit risk than a futures contract
• B)is the forward contract is tailor-made to fit the needs of the buyer
• C)is the forward contract is marked to market more frequently than a futures contract
• D)is the forward contract rarely has final delivery of the asset

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Definitions:

Risk Reduction

Strategies or actions taken to decrease or mitigate the impact of uncertainties on business objectives or investment outcomes.

Balance Sheet

A financial statement at a given point in time that shows assets on one side and liabilities and net worth on the other side; because assets must equal liabilities plus net worth, the two sides of the statement must be in balance.

Net Worth

The total assets minus total external liabilities of an individual or a company, indicating their overall financial position.

Liabilities

Financial obligations or debts owed by a company or individual to others, which must be settled over time through the transfer of economic benefits.