Question

What is one way that futures differ from forward contracts?

	a.	Futures represent an obligation to buy or sell the underlying asset at a specified price, while forwards do not.
	b.	Futures are generally more customizable than forwards.
	c.	Futures are typically settled only at expiration, while forwards are settled daily through marking to market.
	d.	Futures are typically traded on exchanges, while forwards are usually traded over-the-counter.

Answer 1

ANSWER

CORRECT ANSWER : option (d) ie. "Futures are typically traded on exchanges, while forwards are usually traded over-the-counter"

EXLANATION for each option

option (a)

Both the Contects (ie. Futures Contracts & Forward Contracts) represents an obligation to buy or sell the underlying asset at a specified price, UNLESS the positions taken (ie. Buy or Sell) are cancelled before Maturity.

option (b)

Given Statement is totally Incorrects as it is just opposite that Forward Contracts are more customizable because of the reason that they are private contracts between two parties wherein they can set their own terms and conditions for the Contract HOWEVER Futures Contracts are Traded on Exchange so the exists no scope of altering any terms and conditions.

option (c)

Again the given statement is Incorrect and it is just totaly opposite of this that Futures Contract are Marked to Market by brokers WHILE Forward Contracts are directly Settled on Expiry