A forward contract
A)has more credit risk than a futures contract.
B)is more standardized than a futures contract.
C)is marked to market more frequently than a futures contract.
D)has a shorter time to delivery than a futures contract.
E)is less risky than a futures contract.

Question

Quizplus · Accepted Answer

Forward contracts have more credit risk than futures contracts because they are private agreements between two parties, and there is no central clearinghouse to guarantee the performance of the contract. Futures contracts, on the other hand, are standardized and traded on exchanges with a clearinghouse that acts as the counterparty to both sides of the transaction, reducing credit risk.

A Forward Contract