An Advantage of a Forward Contract Over a Futures Contract

question 94

Multiple Choice

An advantage of a forward contract over a futures contract is that

• A) the terms of the contract are flexible.
• B) it is more liquid.
• C) it trades through a centralized market exchange.
• D) it is easier to unwind due to contract homogeneity.
• E) the counterparty is anonymous.

---

Definitions:

Price Floors

Minimum legally allowed prices set above the equilibrium price, typically imposed by the government to ensure producers receive a fair wage.

Equilibrium Price

The cost at which the amount of a product consumers want to buy matches the amount producers are willing to sell, leading to a balanced market situation.

Price Ceilings

A government-imposed limit on how high a price is charged for a product.

Supply Curve

A graphical representation of the relationship between the price of a good and the quantity of that good that suppliers are willing to produce and sell.