Futures markets have grown rapidly because futures contracts
A) are standardized.
B) have lower default risk.
C) are liquid.
D) are all of the above.

Question

Quizplus · Accepted Answer

Futures contracts are standardized, which means that they have identical specifications for the underlying asset, delivery date, and contract price. This reduces transaction costs and increases liquidity. Futures markets also have lower default risk because of the margin requirements and daily settlement process, which ensure that both parties fulfill their obligations. The combination of standardization, liquidity, and lower default risk has made futures markets attractive to investors and traders, leading to their rapid growth.

Futures Markets Have Grown Rapidly Because Futures Contracts