Which of the following observations is true of forwards contracts?
A) Substantial margin is required to initiate a contract.
B) Must be completed either with the underlying's future delivery or net.
C) Cash settlement.
D) Cannot be customized; for a specific amount at a specific date.
E) Usually settled with a net cash amount prior to maturity date.

Question

Quizplus · Accepted Answer

Forwards contracts must be completed either with the underlying's future delivery or net. The other options presented are not accurate. Substantial margin may be required for futures contracts, not forwards contracts. Cash settlement is typically associated with futures contracts rather than forwards contracts. Forwards contracts can be customized for a specific amount at a specific date. Forwards contracts are typically settled with the actual delivery of the underlying asset at maturity, rather than with a net cash amount prior to the maturity date.

Which of the Following Observations Is True of Forwards Contracts