The key difference between a forward and a futures contract is: A forward contract is bought and sold on organized exchanges. Only the forward contracts have settlement dates A forward contract is highly customized where a futures contract is not.
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- Which is true about Futures contracts? a. is not traded on an organized exchange and is customized to meet the needs of the parties. b. is not traded on an organized exchange and is subject to formal regulations which results in standardized contrasts. c. is traded on an organized exchange and is subject to formal regulations which results in standardized contrasts. d. is traded on an organized exchange and is customized to meet the needs of the parties.The advantage of using a forward rate agreement FRA over a futures contract is: * A. FRAs are highly standardized. B. FRAs have only an initial margin and no ongoing maintenance margin. C. the terms and conditions of a FRA can be negotiated. D. FRAs have standardized maturitiesA futures contract a. is not traded on an organized exchange and is customized to meet the needs of the parties. b. is not traded on an organized exchange and is subject to formal regulations which results in standardized contrasts. c. is traded on an organized exchange and is subject to formal regulations which results in standardized contrasts. d. is traded on an organized exchange and is customized to meet the needs of the parties.
- discuss each point Futures contracts have a high degree of standardization, while forward contracts are very individualized. The trading of futures contracts takes place on exchanges, while the trading of forwarding contracts takes place over the counter.Determine which of the following is NOT a distinguishing characteristic of futures contracts, relative to forward contracts. Question * A. Contracts are settled daily, and marked-to-market. B. Contracts are more liquid, as one can offset an obligation by taking the opposite position. C. Contracts are more customized to suit the buyer’s needs. D. Contracts are structured to minimize the effects of credit risk. E. Contracts have price limits, beyond which trading may be temporarily halted.Which of the following is a reason why the default risk of a futures contract is assumed to be less than that of a forward contract? a. Forward contracts can be tailored, while future contracts are non-standardized. b. Forward contracts are classified as exotic derivatives. c. Futures contracts are exchange-traded contracts, daily settlements are implemented by the clearing house. d. More flexibility as the buyer can decide whether or not to exercise the contract at maturity. e. For futures contracts, all cash flows are required to be paid at one time on contract maturity.
- Which is a key difference a manager should note in choosing between forward and futures contracts?a. Exchange trading makes forward contracts more liquid.b. Futures contracts carry standardized terms, while forward contracts can be tailored to meet specific needs.c. Futures contracts have greater default risk than forward contracts.d. Forward contracts require initial margin deposits and daily marking to market, while futures do not.Exchanges are different than Over the counter markets because on exchanges A. Futures contracts are standardized B. All of the Above C. Futures require margin D. Futures are traded on an exchanges that clearAdvantages of currency futures contracts relative to forward contracts include _ a. Higher liquidity b. Standardized contract specifications c. Freedom to sell the contract before maturity d. All of the above
- The fact that the clearinghouse is the counterparty to every futures contract issued is important because it eliminates _________ risk. A. Market B. Basis C. Interest rate D. CreditExplain the basic differences between the operation of a currency forward market and a futures market. Then, discuss the main difference in the obligation of one with a long position in futures (or forward) contract in comparison to an options contractBy acting as the counterparty to every futures position, the exchange eliminates the A) market B) credit C) interest rate D) basis risk.