Futures differ from forward contracts because
A) futures have more liquidity risk.
B) futures have more credit risk.
C) futures have more maturity risk.
D) all of the above.
E) none of the above.

Question

Quizplus · Accepted Answer

None of the options are correct. Futures and forward contracts are similar in many ways, but there are a few important differences. One key difference is that futures contracts are standardized and trade on organized exchanges, while forward contracts are tailored to the specific needs of the parties involved and are traded over-the-counter. Another difference is that futures require margin accounts, which means that there is less credit risk, as parties must have sufficient funds in their accounts to cover potential losses. Finally, both futures and forward contracts have maturity risk, as the parties involved are exposed to changes in the underlying asset's price over time.

Futures Differ from Forward Contracts Because