Which of the following statements is true of forward contracts?
A) A forward contract has three parties: buyer, seller, exchange.
B) There is no default risk in a forward contract.
C) A forward contract is customizable and traded over-the-counter.
D) A forward contract may be unilaterally revoked by the parties to the contract.

Question

Quizplus · Accepted Answer

Forward contracts are customizable and traded over-the-counter, which means they are not standardized contracts and are negotiated directly between the buyer and seller. Choice A is incorrect as a forward contract only involves two parties, not three. Choice B is incorrect as there is a default risk in a forward contract. Choice D is incorrect as a forward contract is a legally binding agreement and cannot be unilaterally revoked by either party.

Which of the Following Statements Is True of Forward Contracts