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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Basics of Derivatives

Which statement about the difference between forwards and futures is correct?

Futures are standardised, exchange-traded contracts that are marked to market daily and backed by a clearing corporation. Forwards, by contrast, are customised over-the-counter agreements with counterparty risk, usually settled only on the maturity date.

  1. AForwards are standardised and traded on exchanges
  2. BFutures are customised and carry high counterparty risk
  3. CFutures are standardised, exchange traded and marked to market dailyCorrect
  4. DForwards are settled daily through a clearing corporation

Explanation

Futures are standardised contracts traded on exchanges, guaranteed by the clearing corporation and marked to market daily. Forwards are customised over-the-counter contracts with counterparty risk and are typically settled at maturity.

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