Which of the following is a major difference between forwards and futures?
A)Forwards are marked to market, while futures are not.
B)Futures are tailor made, while forwards are standardised.
C)The default risk of futures is significantly reduced by the futures exchange guaranteeing to indemnify counterparties against credit risk, while this is not the case for forwards.
D)Forwards are marked to market, while futures are not, futures are tailor made, while forwards are standardised and the default risk of futures is significantly reduced by the futures exchange guaranteeing to indemnify counterparties against credit risk, while this is not the case for forwards.

Question

Quizplus · Accepted Answer

The major difference between forwards and futures is that the default risk of futures is significantly reduced by the futures exchange guaranteeing to indemnify counterparties against credit risk, while this is not the case for forwards. Option A is incorrect because both forwards and futures can be marked to market. Option B is incorrect because forwards can also be tailor-made contracts. Option D is incorrect because it includes incorrect information about marking to market.

Which of the Following Is a Major Difference Between Forwards