The advantage of forward contracts over futures contracts is that forward contracts ________.
A) are standardized
B) have lower default risk
C) are more flexible
D) have higher default risk

Question

Quizplus · Accepted Answer

Forward contracts are more flexible compared to futures contracts. In forward contracts, the terms can be negotiated between the two parties and can be customized to their specific needs. On the other hand, futures contracts are standardized and have pre-determined terms, making them less flexible. However, this flexibility in forward contracts also leads to higher default risk as there is no central clearinghouse to guarantee the performance of the contract.

The Advantage of Forward Contracts Over Futures Contracts Is That