Question

QUESTION 12

Which of the following statements is true regarding the nature of futures contracts?

		They are highly specialized and can be tailored to meet the individual needs of most investors.
		Futures contracts rely on the commoditization the underlying assets they're written on.
		The price at an futures investor buys or sells the underlying asset for is typically determined by a dealer.
		None of the above.

Answer 1

Futures contract rely on the commoditization of the underlying assets on which they are written

Forwards are highly specialised contracts and the futures are standardised exchange traded contracts. Also, commoditisation has much to do with the futures contract. Commoditisation is the process by which the market views various units having seperate attributes as one commodity. Since futures are a promise to deliver in the future, the units are considered the same. For example, if futures are written on shares of a company, it does not matter which shares are delivered as long as they belong to the same company.

Also, the price of a futures contract is determined by the market at the exchange and not by a dealer.