The Main Distinction Between a Forward and a Futures Contract

question 12

Multiple Choice

The main distinction between a forward and a futures contract is:

• A) a forward contract has a final cash flow,while a futures contract has daily cash flows
• B) a forward contract requires no collateral,while a futures contract requires traders to post margins
• C) a forward trade is usually closed out early,while a futures trade usually ends with physical delivery
• D) a forward trade requires cash settlement,while a futures trade does not require this
• E) minor-they are the same contracts

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Definitions:

Registered Bonds

are bonds whose ownership is recorded by the issuing company, ensuring that only the registered owner receives interest payments and the principal back.

Bearer Bonds

Bonds that are owned by the holder rather than a registered owner, and the physical possession of the bond is the only evidence of ownership.

Convertible Bonds

Bonds that can be converted into a predetermined number of the issuing company's shares, typically at the discretion of the bondholder.

Bond Ratings

A classification system that denotes the credit quality and perceived risk of bonds issued by corporations, municipalities, or sovereign entities.