24-23 When compared to swap and option contracts,credit risk exposure is greatest with a futures contract.

Question

Quizplus · Accepted Answer

Futures contracts require daily mark-to-market settlement, which means that each day, the unrealized gains or losses on the contract are settled. Therefore, if one party to the contract defaults or fails to meet settlement obligations, the other party is exposed to credit risk as they may not receive the full value of the contract. In contrast, swap and option contracts do not require daily mark-to-market settlement and therefore have less credit risk exposure.

24-23 When Compared to Swap and Option Contracts,credit Risk Exposure