Forward Contracts Are Not Subject to Default Risk Because the Exchanges

question 5

True/False

Forward contracts are not subject to default risk because the exchanges honor the contract in case the counterparty defaults; but future contracts are subject to default risk because they are non standardized contracts.

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Definitions:

Coercive Power

The ability to compel or force someone to act in a certain way by using threats, punishment, or negative consequences.

Sanction

Official approval or penalty for conduct, depending on context.

Legitimate Power

A form of authority derived from a person's position or role, granting them the right to influence or command.

Reframing

The process of changing the way situations, experiences, or ideas are viewed or interpreted, often to find more positive or empowering perspectives.