Which is a key difference a manager should note in choosing between forward and futures contracts? a. Exchange trading makes forward contracts more liquid. b. Futures contracts carry standardized terms, while forward contracts can be tailored to meet specific needs. c. Futures contracts have greater default risk than forward contracts. d. Forward contracts require initial margin deposits and daily marking to market, while futures do not

Which is a key difference a manager should note in choosing between forward and futures contracts? a. Exchange trading makes forward contracts more liquid. b. Futures contracts carry standardized terms, while forward contracts can be tailored to meet specific needs. c. Futures contracts have greater default risk than forward contracts. d. Forward contracts require initial margin deposits and daily marking to market, while futures do not

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter24: Enterprise Risk Management

Section: Chapter Questions

Problem 8MC

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Determine which of the following is NOT a distinguishing characteristic of futures contracts, relative to forward contracts. Question * A. Contracts are settled daily, and marked-to-market. B. Contracts are more liquid, as one can offset an obligation by taking the opposite position. C. Contracts are more customized to suit the buyer’s needs. D. Contracts are structured to minimize the effects of credit risk. E. Contracts have price limits, beyond which trading may be temporarily halted.
Which of the following is a reason why the default risk of a futures contract is assumed to be less than that of a forward contract? a. Forward contracts can be tailored, while future contracts are non-standardized. b. Forward contracts are classified as exotic derivatives. c. Futures contracts are exchange-traded contracts, daily settlements are implemented by the clearing house. d. More flexibility as the buyer can decide whether or not to exercise the contract at maturity. e. For futures contracts, all cash flows are required to be paid at one time on contract maturity.
The fact that the clearinghouse is the counterparty to every futures contract issued is important because it eliminates _________ risk. A. Market B. Basis C. Interest rate D. Credit
In the futures markets, arbitrageurs are mainly interested in: a. reducing their exposure to risk of price changes. b. increasing market liquidity. c. reducing the spread between the bid and ask prices on bonds. d. attempting to make a profit by taking advantage of price differentials between different markets.
Explain why futures contracts may mitigate the credit risk involved in forward contracts.
The advantage of over-the-counter products such as swaps or forwards contracts, relative to exchange-traded products such as options or futures, is: a. regulation. b. standardisation. c. flexibility. d. all of the given answers.
What are the key differences between future and forward contracts? a) direct contract for forwards b) clearing house for futures c) futures have less risk d) futures have a standard amount
From a credit risk perspective, why will a futures contract be less exposed as compared to a forwardcontract and why not?
Advantages of currency futures contracts relative to forward contracts include _ a. Higher liquidity b. Standardized contract specifications c. Freedom to sell the contract before maturity d. All of the above
Which of the following is true? A.Forward contract buyers and sellers do not know who the counterparty is B.Future contracts are marked to market daily. C.Forward contracts have no default risk. D.Futures contracts involve high default risk
Users of commodities are: a. Usually not participants in futures contracts. b. Speculators preferring to get the large returns which result from large risk. c. Buyers of futures d. Likely to take the short position in a futures contract.
Users of commodities are: Answer a. Usually not participants in futures contracts. b. Speculators preferring to get the large returns that result from large risk. c. Buyers of futures d. Likely to take the short position in a futures contract.