From a financial standpoint, futures are virtually identical to forwards

Question

BlackTom AI · Accepted Answer

In evaluating the statement, we should compare futures and forwards across key financial features. 
Option: True. The claim is that futures are virtually identical to forwards from a financial standpoint. 
First, consider daily settlement and marking to market: futures are marked to market daily, with gains and losses settled each day through margin accounts, whereas forwards are settled only at maturity. This difference affects liquidity, credit exposure, and cash flow timing. 
Next, standardization and trading venue: futures contracts are standardized, traded on exchanges, and backed by clearinghouses; forwards are typically customized contracts between two parties, traded over-the-counter, with greater bespoke terms. This leads to differences in liquidity, credit risk, and ease of entry/exit. 
Additionally, margin requirements and collateral mechanics differ: futures require variation margin on a daily basis, whereas forwards generally involve a single contract price at initiation and no ongoing collateral unless specified by the parties. 
Also, counterparty risk profiles diverge: forwards carry higher unilateral counterparty risk due to the private nature of the agreement, while futures minimize this through centralized clearing and collateral. 
Given these distinctions, stating that futures are virtually identical to forwards ignores the important structural differences in settlement, credit risk, liquidity, and contract standardization. 
Therefore, the claim in Option 1 is not accurate; the statement mischaracterizes the financial similarities and practical mechanics of futures versus forwards. 
If you consider only the superficial purpose (hedging price exposure) they can serve similar aims, but the contractual and operational realities differ in meaningful ways that affect pricing, risk, and flexibility. 
In summary, the assertion that futures are virtually identical to forwards from a financial standpoint overlooks the marking-to-market feature, margin dynamics, standardization, and counterparty risk distinctions that separate the two instruments.

fin_412_120258_251367 Test 1 in class

From a financial standpoint, futures are virtually identical to forwards

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类似问题

We are able to sell or go short futures and forwards, even when we don't own them, because they are derivatives. This means a contract is created each time a buyer and seller make a new transaction.

The main difference between forward and futures contracts is that:

Part 1Financial instruments with returns tied to previously issued securities are called:Part 2 A. financial derivatives B. reversible bonds C. hedge securities D. convertible bonds

Which market involves the trading of derivative securities?

Which of the following is a hedging instrument? _____

The spot market is where securities are sold for cash and delivered immediately, whereas forward markets (or derivative markets) the delivery date is different from the negotiation date.

The spot market is where securities are sold for cash and delivered immediately, whereas forward markets (or derivative markets) the delivery date is different from the negotiation date.

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fin_412_120258_251367 Test 1 in class

From a financial standpoint, futures are virtually identical to forwards

查看解析

登录即可查看完整答案

类似问题

We are able to sell or go short futures and forwards, even when we don't own them, because they are derivatives. This means a contract is created each time a buyer and seller make a new transaction.

The main difference between forward and futures contracts is that:

Part 1Financial instruments with returns tied to previously issued securities are​ called:Part 2 A. financial derivatives B. reversible bonds C. hedge securities D. convertible bonds

Which market involves the trading of derivative securities?

Which of the following is a hedging instrument? _____

The spot market is where securities are sold for cash and delivered immediately, whereas forward markets (or derivative markets) the delivery date is different from the negotiation date.

The spot market is where securities are sold for cash and delivered immediately, whereas forward markets (or derivative markets) the delivery date is different from the negotiation date.

更多留学生实用工具

希望你的学习变得更简单

Part 1Financial instruments with returns tied to previously issued securities are called:Part 2 A. financial derivatives B. reversible bonds C. hedge securities D. convertible bonds