Which of the following observations is true of forward contracts?
A)A substantial margin is required to initiate a contract.
B)They must be completed either with the underlying's future delivery or net cash settlement.
C)They cannot be customized for a specific amount at a specific date.
D)They are usually settled with a net cash amount prior to maturity date.

Question

Quizplus · Accepted Answer

Forward contracts can be settled either through the delivery of the underlying asset or through net cash settlement. This is one of the key differences between forwards and futures, where futures are necessarily settled through delivery or offsetting positions. The other statements are not true - forward contracts do not necessarily require a substantial margin (unlike futures contracts), they can be customized, and they typically do not settle with net cash amounts prior to maturity.

Which of the Following Observations Is True of Forward Contracts