For a futures contract on an asset to be successful compared to the alternative of forward contracts, which of the following features would help?
A) The most appropriate standardized grade for the contract is difficult to identify.
B) Counterparty credit risk is high.
C) Bid-ask spreads in the spot market are high.
D) The underlying spot asset is difficult to short.

Question

Quizplus · Accepted Answer

Counterparty credit risk is high in forward contracts because they are private agreements between two parties. Futures contracts, traded on exchanges, mitigate this risk through daily settlements and the use of a clearinghouse as an intermediary, making them more attractive in scenarios where counterparty credit risk is a concern.

For a Futures Contract on an Asset to Be Successful