Hedging with Forwards and Futures Contracts Is Different Due to the Nature

question 7

Multiple Choice

Hedging with forwards and futures contracts is different due to the nature of the two contracts.Which of the following statements is incorrect in terms of a comparison of the two derivatives?

• A) Forward contracts are better at reducing legal risk.
• B) Futures contracts are better at reducing transaction costs.
• C) Futures contracts are better at reducing credit risk.
• D) Futures contracts are more standardized.
• E) Futures contracts are better at reducing liquidity risk.

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Definitions:

Sleepwalks

A sleep disorder involving walking or performing other activities while not fully awake.

Night Terrors

A sleep disorder causing feelings of panic or dread typically occurring during non-REM sleep and often resulting in loud screams or physical movements.

Circadian Rhythm

The natural, internal process that regulates the sleep-wake cycle and repeats roughly every 24 hours, affecting physical, mental, and behavioral changes.

Illness Anxiety Disorder

A mental health disorder characterized by excessive worry about having or acquiring a serious illness despite medical reassurance.