Which of the following statements is true?
A)In a futures contract, daily cash flows pass, via the clearing house, between the buyer and seller in response to the mark-to-market process.
B)In a forward contract, daily cash flows pass, via the clearing house, between the buyer and seller in response to the mark-to-market process.
C)In a futures contract, daily cash flows pass, via the clearing house, between the buyer and seller in response to the mark-to-book value process.
D)In a forward contract, daily cash flows pass, via the clearing house, between the buyer and seller in response to the mark-to-book value process.

Question

Quizplus · Accepted Answer

In a futures contract, daily cash flows pass through the clearinghouse between the buyer and seller in response to the mark-to-market process. This process involves valuing the futures contract at the end of each trading day and adjusting the margin account of each party accordingly. The clearinghouse acts as an intermediary in handling these cash flows and ensuring that each party meets its financial obligations. In contrast, forward contracts do not involve a clearinghouse and may involve less frequent or no cash flows until the contract matures.

Which of the Following Statements Is True