FRM Part I · FRM Exam Part I · Futures Markets
Which feature most clearly distinguishes an exchange-traded futures contract from a forward contract?
Futures are standardized contracts traded on an exchange and marked to market daily through a clearing house, whereas forwards are privately negotiated and typically settled at maturity. Most futures are closed before delivery, and margining reduces but does not eliminate credit risk.
- AFutures are standardized and marked to market daily through a clearing houseCorrect
- BFutures always require physical delivery at maturity
- CFutures have no counterparty credit exposure for either party's margin
- DFutures terms are negotiated privately between the two parties
Explanation
Futures have standardized terms and daily settlement via a clearing house. Most futures are closed out before delivery, so physical delivery is not always required. Credit risk is reduced, not eliminated. Private negotiation describes forwards.
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