major disadvantage of forward and futures contracts relative to options is that the forwards and futures contracts
A)cannot protect the holder against the risk of adverse movements in exchange rates
B)are more expensive
C)are available only for relatively short maturities
D)eliminate the possibility of gaining a windfall profit from favorable movements in exchange rates

Question

Quizplus · Accepted Answer

Forward and futures contracts obligate the buyer to purchase and the seller to sell an asset at a set price on a future date, regardless of the market price at that time. This means that while they protect against losses from adverse price movements, they also prevent the holder from benefiting from favorable price movements, unlike options, which give the right but not the obligation to buy or sell an asset, allowing for potential windfall profits.

Major Disadvantage of Forward and Futures Contracts Relative to Options