Question

. Currency options sold through an options exchange contain which of the following? a) a commitment to the owner and are standardized. b) a commitment to the owner and can be tailored to the owner’s desire. c) a right but not a commitment to the owner and can be tailored to the owner’s desire. d) a right but not a commitment to the owner and are standardized.

Answer 1

Answer: a) a commitment to the owner and are standardized.

Step-by-step explanation:

Futures are generally traded through Exchanges as opposed to Forwards which are not.

Futures are a commitment to the owner to buy or sell an underlying asset and as they are sold at Exchanges, they are standardized to allow for easier trading. The prices that the sellers are to get are certain as the Exchange protects the transaction.

Unlike Forwards that can be tailor made to the specifications of the owner, Futures come as already made and standardized and so are not tailor made. This is to enable as many participants as possible.

This is why option A is correct because Futures contain a commitment to the owner and are standadized as well.