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IAI Actuarial Core Principles · Actuarial Mathematics for Modelling · Financial instruments and insurance contracts as cashflow models

Which statement correctly distinguishes a futures contract from a forward contract on the same asset?

Futures are marked to market daily through a clearing house with margin, while forwards are typically settled only at maturity. Futures are standardised and exchange-traded; forwards are customised over-the-counter agreements. Both carry obligations, unlike options, which give a right without obligation.

  1. AFutures are settled through daily marking to market via a clearing house, whereas forwards are usually settled only at maturityCorrect
  2. BForwards are exchange-traded and standardised, whereas futures are bespoke over-the-counter agreements
  3. CA futures contract gives the holder the right but not the obligation to trade
  4. DForwards require a margin account that is adjusted daily, whereas futures do not
  5. Futures always have zero payoff at maturity

Explanation

Futures are standardised, exchange-traded and marked to market daily, with margin held through a clearing house. Forwards are bespoke OTC contracts settled at maturity. The right-but-not-obligation feature describes options.

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