CFA Level I · CFA Level I Exam · Forward Commitment and Contingent Claim Features and Instruments
Compared with a forward contract, a futures contract is most likely to feature:
Futures contracts are most likely to feature daily settlement of gains and losses through a clearinghouse. Customized terms belong to forwards, and most futures positions are closed out before expiry instead of being delivered, so only the daily mark-to-market description fits futures.
- Acustomized terms negotiated between two parties
- Bdaily settlement of gains and losses through a clearinghouseCorrect
- Cdelivery at maturity being the usual way contracts end
Explanation
Futures are standardized, exchange-traded and marked to market daily, with a clearinghouse guaranteeing performance. Customized terms are a feature of forwards. Most futures positions are closed out before expiry rather than settled by delivery, so the third option is wrong.
Did you get it right without looking?
One question tells you little. A timed set on Forward Commitment and Contingent Claim Features and Instruments shows your real accuracy, how long you take and where you lose marks.
More Forward Commitment and Contingent Claim Features and Instruments questions
- Which statement about exchange-traded versus over-the-counter derivatives is most accurate?
- A one-year swap has quarterly settlements with a fixed rate of 3.60% per year on a notional of USD 20 million. The floating rate set at the …
- A fund manager enters a long forward contract to buy 1,000 units of an asset at 50 per unit. At expiry, the spot price is 56 per unit. The p…
- Which of the following instruments is best described as a forward commitment?
- Compared with a plain vanilla interest rate swap, a currency swap most likely differs because it typically involves:
- A fund manager expects to invest cash in floating-rate deposits and wants protection against falling rates while keeping the benefit if rate…