The key advantage of futures contracts over forward contracts is B. Lack of counterparty risk.

Here's why:

A. Customizable terms - This is actually an advantage of forward contracts, not futures. Forward contracts can be customized to fit the specific needs of the parties involved, while futures contracts have standardized terms.

B. Lack of counterparty risk - This is a key advantage of futures contracts. Futures contracts are traded on an exchange, which acts as a counterparty to both parties in the contract and guarantees the terms of the contract. This eliminates the risk that one party will default on their obligations.

C. Standardized terms - While it's true that futures contracts have standardized terms, this is not necessarily an advantage over forward contracts. The standardization of futures contracts can limit their flexibility and make them less suitable for some purposes.

D. Settled at the discretion of the parties involved - This is also an advantage of forward contracts, not futures. The terms of a forward contract, including the settlement date, are negotiated between the two parties involved. In contrast, the settlement date of a futures contract is set by the exchange.

Question

The key advantage of futures contracts over forward contracts is B. Lack of counterparty risk.

Here's why:

A. Customizable terms - This is actually an advantage of forward contracts, not futures. Forward contracts can be customized to fit the specific needs of the parties involved, while futures contracts have standardized terms.

B. Lack of counterparty risk - This is a key advantage of futures contracts. Futures contracts are traded on an exchange, which acts as a counterparty to both parties in the contract and guarantees the terms of the contract. This eliminates the risk that one party will default on their obligations.

C. Standardized terms - While it's true that futures contracts have standardized terms, this is not necessarily an advantage over forward contracts. The standardization of futures contracts can limit their flexibility and make them less suitable for some purposes.

D. Settled at the discretion of the parties involved - This is also an advantage of forward contracts, not futures. The terms of a forward contract, including the settlement date, are negotiated between the two parties involved. In contrast, the settlement date of a futures contract is set by the exchange.

Knowee AI · Accepted Answer

The key advantage of futures contracts over forward contracts is B. Lack of counterparty risk.

Here's why:

A. Customizable terms - This is actually an advantage of forward contracts, not futures. Forward contracts can be customized to fit the specific needs of the parties involved, while futures contracts have standardized terms.

B. Lack of counterparty risk - This is a key advantage of futures contracts. Futures contracts are traded on an exchange, which acts as a counterparty to both parties in the contract and guarantees the terms of the contract. This eliminates the risk that one party will default on their obligations.

C. Standardized terms - While it's true that futures contracts have standardized terms, this is not necessarily an advantage over forward contracts. The standardization of futures contracts can limit their flexibility and make them less suitable for some purposes.

D. Settled at the discretion of the parties involved - This is also an advantage of forward contracts, not futures. The terms of a forward contract, including the settlement date, are negotiated between the two parties involved. In contrast, the settlement date of a futures contract is set by the exchange.

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

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