Which of the following statements is correct?
A) Futures contracts and options contracts are economically similar, but vary in how they are traded.
B) Forward contracts and futures contracts are economically similar, but vary in how they are traded.
C) Forward contracts and options contracts are economically similar, but vary in how they are traded.
D) Forward contracts, futures contracts, and options contracts are all economically similar, but vary in how they are traded.

Question

Quizplus · Accepted Answer

Forward contracts and futures contracts are economically similar as they both involve an agreement between two parties to buy or sell an underlying asset at a future date and price. However, they vary in how they are traded, as forward contracts are customized agreements traded in the over-the-counter market, while futures contracts are standardized agreements traded on exchanges. Options contracts, on the other hand, give the buyer the right, but not the obligation, to buy or sell an underlying asset at a future date and price, and therefore differ economically from both forward and futures contracts.

Which of the Following Statements Is Correct