Skip to content

FRM Part I · FRM Exam Part I · Introduction to Derivatives

Which statement about a forward contract compared with an exchange-traded futures contract is most accurate?

A forward is customizable and normally settled once at maturity, without daily margining. It is a bilateral OTC contract, so it carries counterparty credit risk. Standardization, daily mark-to-market and clearinghouse guarantees are features of exchange-traded futures.

  1. AA forward is customizable and typically settled once at maturity, with no daily marginingCorrect
  2. BA forward is standardized and marked to market daily
  3. CA forward has no counterparty risk because it is bilateral
  4. DA forward requires a clearinghouse to guarantee performance

Explanation

Forwards are bilateral OTC agreements that can be tailored to size, date and asset, and are typically settled at maturity without daily mark-to-market. They carry counterparty credit risk, and the other options describe futures or are false.

Did you get it right without looking?

One question tells you little. A timed set on Introduction to Derivatives shows your real accuracy, how long you take and where you lose marks.

Practise Introduction to DerivativesFree diagnostic mock

More Introduction to Derivatives questions