The advantage of forward contracts over futures contracts is that forward contracts
A) are standardized.
B) have lower default risk.
C) are more flexible.
D) both A and B are true.

Question

Quizplus · Accepted Answer

Forward contracts are more flexible than futures contracts because they are customized to meet the specific needs of the parties involved. In contrast, futures contracts are standardized and traded on exchanges, limiting the flexibility of the contract terms. While it is true that forward contracts may have higher default risk than futures contracts due to the lack of a central clearinghouse, this is not necessarily an advantage of forward contracts over futures contracts. Therefore, options A and B are not correct.

The Advantage of Forward Contracts Over Futures Contracts Is That