The Main Tradeoff Between Forward and Future Contracts Is

question 9

Multiple Choice

The main tradeoff between forward and future contracts is

• A) design flexibility.
• B) credit risk.
• C) liquidity risk.
• D) all of the above.
• E) choices a and b only

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Definitions:

Variable Cost

Costs that change in proportion to the activity of a business.

Fixed Costs

Fixed expenses unaffected by the volume of production or sales, like rent, insurance, and wages.

Sensitivity

In finance, sensitivity indicates how much the value of an investment or project changes in response to changes in underlying variables, such as interest rates or market conditions.

Net Present Value

The financial difference calculated by subtracting cash outflows’ present value from cash inflows’ present value during a set period.