Which one of the following statements contrasting options, forwards, and futures is correct?
A) Both parties are obligated under an options contract while only one party is obligated under a forward contract.
B) The buyer of a forward contract pays a premium when the contract is negotiated, the buyer of an options contract does not.
C) Gains and losses on a futures contract are realized daily while gains and losses on a forward contract are realized only on the settlement date.
D) Both forward and futures contracts are exercised only if the buyer so chooses.
E) Options are marked to the market daily but futures are not.

Question

Quizplus · Accepted Answer

C) Gains and losses on a futures contract are realized daily through a process called marking to market, whereas gains and losses on a forward contract are realized only at the time of settlement. This is a key difference between these two types of derivative contracts.

Which One of the Following Statements Contrasting Options, Forwards, and Futures