With regard to trading costs,
A)forward contracts involve the bid-ask spread plus the broker's commission.
B)futures contracts involve the bid-ask spread plus the broker's commission.
C)futures contracts involve the bid-ask spread plus indirect bank charges via compensating balance requirements.
D)none of the options

Question

Quizplus · Accepted Answer

Futures contracts involve trading costs such as bid-ask spread (the difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept) and the broker's commission. Forward contracts, on the other hand, involve bid-ask spread plus other costs such as credit risk, counterparty risk, and funding costs. Indirect bank charges via compensating balance requirements are not directly related to trading costs.

With Regard to Trading Costs