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:

Average Tax Rate

The ratio of total taxes paid to total income, indicating the percentage of income that goes to taxes.

Inelastic Supply

A situation where the quantity supplied of a good or service does not change significantly in response to price changes.

Health Care

The organized provision of medical services to individuals or communities.

Medical Services

Professional care or treatment provided by doctors and other health professionals to maintain or improve health.