Contingent credit risk on derivative contracts is more serious for futures contracts than for forward contracts.

Question

Quizplus · Accepted Answer

Contingent credit risk on derivative contracts is more serious for forward contracts than for futures contracts because futures contracts are traded on exchanges that typically require daily settlement and have clearinghouses that guarantee the contracts, thereby reducing credit risk. Forward contracts, on the other hand, are private agreements between parties and do not have this level of intermediation, making them more susceptible to credit risk.

Contingent Credit Risk on Derivative Contracts Is More Serious for Futures