Which of statements a) through d) concerning futures contracts is FALSE?
A) An exchange clearinghouse takes one side of every transaction.
B) An initial margin and a maintenance margin are required.
C) Futures contracts are marked-to-market on a daily basis.
D) Futures contracts are pure credit instruments and have significant default risk.
E) All of the above are true.

Question

Quizplus · Accepted Answer

Futures contracts are not pure credit instruments and do not have significant default risk. This is because the exchange clearinghouse acts as a counterparty to all trades and guarantees the performance of both buyer and seller. The initial and maintenance margins are designed to ensure that traders have sufficient funds to cover potential losses and avoid default.

Which of Statements A) Through D) Concerning Futures Contracts Is