Forward contracts are not subject to default risk because the exchanges honor the contract in case the counterparty defaults; but future contracts are subject to default risk because they are non standardized contracts.

Question

Quizplus · Accepted Answer

This statement is incorrect. Both forward and futures contracts are subject to default risk. While exchanges may provide mechanisms to mitigate this risk, such as margin requirements and clearinghouses, there is always potential for counterparty default. Additionally, not all futures contracts are non-standardized. Some exchanges offer standardized futures contracts alongside customizable ones.

Forward Contracts Are Not Subject to Default Risk Because the Exchanges