An important reason for trading a futures contract rather than an FRA is:
A) The expense of settling an FRA
B) The reduced counterparty risk on a futures exchange
C) The reduced basis risk on futures
D) The superior interest rate risk on FRAs

Question

Quizplus · Accepted Answer

Trading a futures contract reduces counterparty risk because it is cleared through a central exchange, whereas an FRA involves a bilateral agreement and therefore carries the risk of default by the other party.

An Important Reason for Trading a Futures Contract Rather Than