A One-Year Futures Contract Is Riskier Than a One-Year Forward

question 6

Multiple Choice

A one-year futures contract is riskier than a one-year forward contract because:

• A)futures contracts are not regulated.
• B)forward contracts are traded through organized exchanges.
• C)futures are mark-to-market.
• D)there is arbitraging opportunities associated with the futures contract.

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Definitions:

Semiannual Interest

Semiannual interest refers to the interest payment made two times a year on a loan or bond.

Present Value

The present valuation of a future financial sum or cash flow series, factoring in a specific return rate.

Compound Interest

Interest earned on both the initial principal and the accumulated interest from previous periods on a deposit or loan.

Bond

A financial instrument in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period at a specified interest rate.