Question

What is one way that futures differ from forward contracts?

a. Futures are typically traded on exchanges, while forwards are usually traded over-the-counter.

b. Futures are typically settled only at expiration, while forwards are settled daily through marking to market.

c. Futures represent an obligation to buy or sell the underlying asset at a specified price, while forwards do not.

d. Futures are generally more customizable than forwards.

Answer 1

a. Futures are typically traded on exchanges, while forwards are usually traded over-the-counter.: This is the right answer. Futures are standardised and are typically traded through an exchange, where as forwards are customised contracts, which are traded through OTC market.

Option b is incorrect, as the futures are typically settled on a daily basis through the mark-to-market, whereas with Forwards, it is only settled at expiration.

Option C, Both futures and forwards represents an obligation to buy or sell underlying at a prespecified price.

Option d. Its just the opposite, forwards are more customised than futures, futures are standardised contracts, traded through exchanges.

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