The advantage that standardisation of futures contracts brings is that ________ is improved because ________.
A)liquidity; all traders must trade a small set of identical contracts
B)credit risk; all traders understand the risk of the contracts
C)pricing; convergence is more likely to take place with fewer contracts
D)trading cost; trading volume is reduced

Question

Quizplus · Accepted Answer

Standardisation of futures contracts allows for a small set of identical contracts to be traded, leading to increased liquidity as all traders are able to trade the same contracts without confusion or complications. This can lead to tighter bid-ask spreads and improved market efficiency. Credit risk, pricing, and trading costs may also be impacted by standardisation, but the most directly and widely recognized benefit is improved liquidity.

The Advantage That Standardisation of Futures Contracts Brings Is That