There Are a Number of Differences Between Forward and Futures

question 61

Multiple Choice

There are a number of differences between forward and futures contracts. Which of the following statements is FALSE?

• A) Futures have less liquidity risk than forward contracts.
• B) Futures have less credit risk than forward contracts.
• C) Futures have more default risk than forward contracts.
• D) In futures, the exchange becomes the counterparty to all transactions.
• E) Futures have standardized terms of agreement.

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Definitions:

Cash Sale

A transaction in which goods or services are paid for and received at the time of sale, using cash or its equivalents.

Discount Period

The time frame within which a payment can be made at a reduced rate before it reverts to the full price.

Accounts Receivable

The money owed to a business by its clients or customers for goods or services delivered but not yet paid for.

Credit Terms

Conditions under which credit is extended by a lender to a buyer, including repayment time frame and interest rate.