A disadvantage of forward contracts is that
A)there is a possibility that one party to the agreement may default.
B)sellers are prevented from hedging.
C)buyers are prevented from hedging.
D)sellers are prevented from speculating.

Question

Quizplus · Accepted Answer

One of the main disadvantages of forward contracts is the possibility that one party may default, which can result in significant financial losses for the other party involved. This risk is not present in other types of derivatives, such as options and futures, which have built-in mechanisms to limit counterparty risk.

A Disadvantage of Forward Contracts Is That