Question

Which of the following statements is most accurate?Briefly explain

A. Futures contracts could be private transactions.

B. Forward contracts marked to market daily are futures contracts.

C. A Forward contract could have the same liquidity as a Futures contracts.

D. Futures contracts require that both parties to the transaction have a high degree of creditworthiness.

Answer 1

The forward contract is an agreement between a buyer and seller to trade an asset at a future date. The price of the asset is set when the contract is drawn up. Forward contracts have one settlement date—they all settle at the end of the contract.

Because they are private agreements, there is high counterparty risk. This means there may be a chance that one party will default.

Like forward contracts, futures contracts involve the agreement to buy and sell an asset at a specific price at a future date. The futures contract, however, has some differences from the forward contract. The market for futures contracts is highly liquid, giving investors the ability to enter and exit whenever they choose to do so.

These two points prove that future contracts are more liquid because they're traded on an exchange and forward contracts have a chance to default.

Option B seems to be most accurate to me.