A potential disadvantage of forward contracts versus futures contracts is:
A) the extra liquidity required to cover the potential outflows that occur prior to delivery and caused by marking to market.
B) the incentive for a particular party to default.
C) that the buyers and sellers don't know each other and never meet.
D) All of these.
E) Both the extra liquidity required to cover the potential outflows that occur prior to delivery and caused by marking to market; and that the buyers and sellers don't know each other and never meet.

Question

Quizplus · Accepted Answer

Forward contracts are private agreements between two parties, which increases the risk of default since there is no clearinghouse involved to guarantee the trade, unlike futures contracts.

A Potential Disadvantage of Forward Contracts Versus Futures Contracts Is