25.Which of the following statements is true regarding the distinction between futures and forward contracts? A. Futures contracts are more customizable than forward contracts B. Forward contracts are traded on organized exchanges C. Futures contracts have standardized terms, while forward contracts are customizable D. Forward contracts are settled at a future date
Question
25.Which of the following statements is true regarding the distinction between futures and forward contracts? A. Futures contracts are more customizable than forward contracts B. Forward contracts are traded on organized exchanges C. Futures contracts have standardized terms, while forward contracts are customizable D. Forward contracts are settled at a future date
Solution
The correct answer is C. Futures contracts have standardized terms, while forward contracts are customizable.
Here's why:
A. Futures contracts are not more customizable than forward contracts. It's actually the opposite. Forward contracts are more customizable.
B. Forward contracts are not traded on organized exchanges. They are private agreements between two parties and are traded over-the-counter, not on an exchange.
C. This statement is true. Futures contracts are standardized, meaning they have fixed quantities and qualities that are the same for all contracts. On the other hand, forward contracts are customizable and the terms can be negotiated between the buyer and seller.
D. While it's true that forward contracts are settled at a future date, this is also true for futures contracts, so it doesn't distinguish between the two.
Similar Questions
What is a key feature of futures contracts that distinguishes them from forward contracts? A. Futures have standardized terms B. Futures have longer maturities C. Futures cannot be traded on exchanges D. Futures involve physical delivery
Which of the following is a key advantage of futures contracts over forward contracts? A. Customizable terms B. Lack of counterparty risk C. Standardized terms D. Settled at the discretion of the parties involved
Which of the following statements is FALSE? a. Futures have less credit risk than forwards. b. Futures and forward derivatives are traded. c. Futures and forward contracts can be used to hedge profits. d. Forward contracts do not have basis risk.
Which of the following is NOT an advantage of using futures contracts to hedge an exposure compared to using forward contracts to hedge the same exposure? A. Futures generally have more liquid markets. B. Futures generally offer lower counter-party risk. C. Futures are available on a greater range of products. D. Futures have very low transaction costs.
How are futures and forwards different? State at least 2 properties or conditions.
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