Forward contracts are said to possess risk.
A)business risk
B)financial risk
C)performance risk
D)spot risk

Question

Quizplus · Accepted Answer

Forward contracts involve performance risk, which refers to the possibility that one party may default on their obligation to perform under the contract. This risk arises because the price of the underlying asset may change before the contract is settled, resulting in a loss for the party who agreed to deliver the asset. Business risk relates to the general risk associated with the operations of a particular company, financial risk refers to the risk of a loss due to changes in market conditions or interest rates, and spot risk is the risk of a loss due to changes in the spot price of the underlying asset. None of these risks specifically apply to forward contracts.

Forward Contracts Are Said to Possess Risk