Major Disadvantage of Forward and Futures Contracts Relative to Options

question 14

Multiple Choice

major disadvantage of forward and futures contracts relative to options is that the forwards and futures contracts

• A)cannot protect the holder against the risk of adverse movements in exchange rates
• B)are more expensive
• C)are available only for relatively short maturities
• D)eliminate the possibility of gaining a windfall profit from favorable movements in exchange rates

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Definitions:

Public Goods

Goods that are non-excludable and non-rivalrous, meaning they can be enjoyed by anyone and one person's consumption does not reduce another's.

Excludable

An excludable good is one from which individuals can be prevented from using if they do not pay for it.

Rival In Consumption

A characteristic of a good or service that means its consumption by one individual prevents simultaneous consumption by another individual.

Private Good

A product or service that is consumed by one individual without providing benefit to others and is subject to exclusion and rivalry.