The risk of default is larger with futures contracts than with forward contracts largely because the value of the futures contract is marked-to-market daily, resulting in a higher chance that one of the individuals will be unable to make the required deposit.

Question

Quizplus · Accepted Answer

The risk of default is generally lower with futures contracts than with forward contracts because futures are marked-to-market daily and traded on an exchange with a clearinghouse that guarantees the contract, reducing the default risk. Forward contracts, on the other hand, are private agreements with potentially higher default risk due to the lack of a central clearinghouse and daily settlement.

The Risk of Default Is Larger with Futures Contracts Than