Which of the Following Is a Reason Why the Default

question 40

Multiple Choice

Which of the following is a reason why the default risk of a futures contract is assumed to be less than that of a forward contract?

• A)Forward contracts are classified as exotic derivatives.
• B)Margin requirements on futures.
• C)More flexibility as the buyer can decide whether or not to exercise the contract at maturity.
• D)None of the listed options are correct.as the default risk of a futures contract is generally considered to be higher than that of a forward contract.

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Definitions:

Total Risk

The complete range of risks associated with an investment, including both systematic risk (market related) and unsystematic risk (company or industry specific).

Standard Deviation

A measure of the dispersion or variability of a set of data points from its mean, often used in finance to gauge investment risk.

Risk Premium

The extra return above the risk-free rate that investors require to compensate them for holding a risky asset.

Bearing Risk

The act of accepting potential loss from uncertainty in investment or business operations.