Which of the following is NOT an attribute of a forward of futures contract?
A) Because futures contracts are between anonymous parties, there is a risk of default as each party may not be in a position to assess the credit worthiness of the other party .
B) Since a forward contract is only a customary agreement between non-anonymous parties, there is a risk that one party may default if future prices deviate materially from the contracted price.
C) By alternatively using a future contract rather than a forward contract, the risk of default is eliminated.
D) In the case of a forward contract where the contract is negotiated with a known party, a firm may be disclosing strategic information regarding its risk exposure.

Question

Quizplus · Accepted Answer

A) Default risk is eliminated under a futures contract since parties are required to make a margin account deposit at the beginning of the contract period. This account is adjusted daily based on commodity price movements over the life of the contract.

Which of the Following Is NOT an Attribute of a Forward