Which of the following is a reason why the default risk of a futures contract is assumed to be less than that of a forward contract?
A)Forward contracts are classified as exotic derivatives.
B)Margin requirements on futures.
C)More flexibility as the buyer can decide whether or not to exercise the contract at maturity.
D)None of the listed options are correct.as the default risk of a futures contract is generally considered to be higher than that of a forward contract.

Question

Quizplus · Accepted Answer

The margin requirements on futures contracts serve as a buffer against potential default risk by requiring both parties to put up collateral. This reduces the default risk of futures contracts compared to forward contracts, which do not have margin requirements.

Which of the Following Is a Reason Why the Default