Which one of the following is a difference between a forward contract and a futures contract?
A)Forward contracts are based on commodities while futures contracts are based on financial instruments.
B)The price of the asset exchanged is determined when a forward contract is entered while the price is set on the exchange date for a futures contract.
C)A forward contract is a formal agreement while a futures contract is an informal agreement.
D)Futures contracts are managed through an organized exchange while forward contracts are not.
E)There are no differences between forward and futures contracts.

Question

Quizplus · Accepted Answer

Futures contracts are traded on organized exchanges, which provide a standardized market with clearinghouses that guarantee the contracts. Forward contracts, in contrast, are private agreements between two parties and are not traded on an exchange, making them more customizable but also subject to higher counterparty risk.

Which One of the Following Is a Difference Between a Forward