Question

Which of the following statements is least accurate concerning differences in the pricing of forwards and futures?

A) Differences in the pattern of cash flows of forwards and futures can explain the pricing of forwards and futures?
B) Interest rate volatility can explain pricing differences

C) Pricing differences can arise if future prices and interest rates are uncorrelated

Answer 1

The first statement is correct as changes in the pattern of cash flows of forwards and futures can give an explanation in the pricing of both futures and forward contracts. The second statement is also correct as high volatile interest rates can show the differences in the pricing. The only statement which is incorrect is the lack of correlation will bring an identical pattern in the future prices and interest rates of both futures and forward contracts. Hence option (c ) is correct.