The bond required by the exchange of both the buyer and seller of a futures agreement to ensure that both parties abide by the agreement is called
A)the performance bond.
B)an option bond.
C)a risk premium.
D)a margin requirement.

Question

Quizplus · Accepted Answer

A performance bond, also known as a margin or initial margin, is required by the exchange to ensure that both parties fulfill their obligations under the futures agreement. It is a form of security deposit and is computed as a percentage of the contract price. It is designed to protect the exchange and other market participants from default and to encourage good faith participation in the futures market.

The Bond Required by the Exchange of Both the Buyer