Which of the following statements is most CORRECT?
A) One advantage of forward contracts is that they are default free.
B) Futures contracts generally trade on an organized exchange and are marked to market daily.
C) Goods are never delivered under forward contracts, but are almost always delivered under futures contracts.
D) There are futures contracts for currencies but no forward contracts for currencies.

Question

Quizplus · Accepted Answer

Futures contracts are standardized contracts that trade on organized exchanges and are marked to market daily. This means that the gains and losses are settled daily, and the parties must have enough margin in their account to cover the losses. Unlike forward contracts, futures contracts involve an exchange of the underlying asset or a cash settlement at expiration. Therefore, statement A is incorrect because forward contracts are not default-free. Statement C is also incorrect because goods are delivered under both forward and futures contracts, depending on the terms of the agreement. Statement D is incorrect because there are both forward and futures contracts available for currencies.

Which of the Following Statements Is Most CORRECT