NISM Certifications · NISM-Series-VIII: Equity Derivatives · Basics of Derivatives
Which of the following is a key difference between a forward contract and a futures contract?
Futures are standardised exchange-traded contracts guaranteed by a clearing corporation and marked to market daily, whereas forwards are customised over-the-counter agreements between two parties carrying counterparty default risk. The other statements reverse these features.
- AFutures are standardised and traded on exchanges with a clearing corporation guaranteeing settlement, while forwards are customised OTC contractsCorrect
- BForwards are marked to market daily while futures are settled only at maturity
- CFutures carry counterparty default risk while forwards do not
- DForwards are always cash settled and futures are always physically settled
Explanation
Futures have standardised terms, exchange trading, margining, daily MTM and clearing corporation guarantee. Forwards are bilateral OTC contracts with counterparty risk. The other options reverse these features or make false claims about settlement.
Did you get it right without looking?
One question tells you little. A timed set on Basics of Derivatives shows your real accuracy, how long you take and where you lose marks.
More Basics of Derivatives questions
- Which statement about the key difference between forward and futures contracts is correct?
- An investor buys a call option on a stock with a strike price of ₹1,200 at a premium of ₹45. At expiry the stock settles at ₹1,230. What is …
- Which of the following best describes a derivative contract?
- A stock trades at Rs 400 and the one-month futures is quoted at Rs 408. Assume the risk-free rate is 12% per annum with continuous compoundi…
- Which statement about exchange-traded derivatives compared with OTC derivatives is correct?
- An investor holds a portfolio of shares worth Rs 50 lakh with a beta of 1.2 against the Nifty. To hedge fully using Nifty futures, the inves…