Question

Futures contracts differ from forward contracts in that ________.

A. futures contracts are standardized and performance of each party is guaranteed by the clearinghouse.
B. futures contracts are standardized and require a daily settling of any gains or losses.
C. futures contracts are standardized, performance of each party is guaranteed by a clearinghouse, and they require a daily settling of any gains or losses
D. performance is guaranteed by a process known as marking to market.

Answer 1

Answer: C is the best option.

Step-by-step explanation:

C is the best option simply because it caters for all the options.

If there was an All of the Above option it would be better. All options are correct but C encapsulates them all.

Futures contracts are indeed STANDARDIZED and not as custom made as Forward contracts so there is less room for maneuvering. This enables them to be sold easily in the market.

Futures Contracts are also Guaranteed by the Clearing House in that they guarantee the smoothness of the transaction and ensure that both parties get the benefits dues to them.

Futures Contracts require a daily settling of any gains or losses in that if the value of the contract increases, that increase must be paid to the seller. This process is known as MARKING TO MARKET. This is unlike Forward Contracts where the settling is due when the deal is concluded.