Counterparty Risk in a Futures Contract Is Lower Than in a Forward

question 7

Multiple Choice

Counterparty risk in a futures contract is lower than in a forward contract because

• A) The participants in the futures market are better funded.
• B) The futures contract is marked-to-market on a daily basis.
• C) The futures exchange bears the counterparty risk.
• D) The forward market does not charge commissions that may be used to offset the risk of counterparty failure.

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Definitions:

Torrens System

The Torrens system is a method of registering titles to land, named after Sir Robert Torrens, designed to simplify land transactions and provide clear ownership.

Registry System

A provincial government operated system for the registration of interests in land.

Province Guarantees

Assurances or commitments provided by a provincial government, often related to financial backing or support.

Solicitor's Customary Searches

Legal inquiries made by a solicitor to ensure there are no legal impediments to a property sale.