Futures contracts minimize default risk by requiring traders to post collateral called ________ when buying or selling commodities using futures contracts.
A)down payment
B)marked to market
C)margin
D)commission
E)deposit

Question

Quizplus · Accepted Answer

Futures contracts require traders to post collateral called margin when buying or selling commodities. This margin is a percentage of the overall value of the contract and serves as a form of security against default risk. If the value of the underlying commodity changes, the margin may need to be adjusted, a process called marking to market. This system helps to ensure that traders are financially responsible and reduces the risk of default.

Futures Contracts Minimize Default Risk by Requiring Traders to Post