Futures differ from forward contracts because
A) futures have more liquidity risk.
B) futures have more credit risk.
C) futures have more maturity risk.
D) futures do not require collateral.
E) None of these are correct.

Question

Quizplus · Accepted Answer

Futures and forward contracts are both derivative contracts that involve an agreement to buy or sell an underlying asset at a future date for a certain price. However, futures trade on organized exchanges and are standardized, while forward contracts are private agreements between two parties and can be customized to meet their specific needs. Futures contracts are also marked to market daily, which means that gains and losses are realized immediately and parties have to post margin to cover potential losses. This results in less credit risk and more collateral requirements compared to forward contracts. Maturity risk and liquidity risk can vary for both types of contracts depending on the specific underlying asset and market conditions. Therefore, the correct answer is E, none of these are correct.

Futures Differ from Forward Contracts Because