Which of the following statements is true?
A)The default risk in futures contracts is considered to be less than that of forward contracts because of daily marking to market of futures.
B)The default risk in futures contracts is considered to be less than that of forward contracts because of margin requirements on futures that act as a security bond and because of default guarantees by the future exchange itself.
C)The default risk in futures contracts is considered to be less than that of forward contracts because of price limits that spread out over times of extreme price fluctuations.
D)All of the listed options are correct.

Question

Quizplus · Accepted Answer

All the statements provided are correct reasons why the default risk in futures contracts is considered to be less than that of forward contracts. Daily marking to market, margin requirements, and default guarantees by the futures exchange all contribute to reducing the default risk associated with futures contracts compared to forward contracts. Price limits also help manage risk by preventing extreme price fluctuations within a short period.

Which of the Following Statements Is True