When firms use futures contracts for hedging,cash flows are received and paid daily rather than waiting until the end of the contract through a procedure called:
A)cash flow hedging.
B)marking to market.
C)swaps.
D)put-call parity.
E)daily settlement.

Question

Quizplus · Accepted Answer

Marking to market is the procedure where firms receive and pay cash flows daily on futures contracts to reflect the daily changes in market value, rather than waiting until the contract's end. This process ensures that the value of the contract is kept in line with market movements, reducing credit risk.

When Firms Use Futures Contracts for Hedging,cash Flows Are Received