1. Futures are marked to market while forwards are not. Explain.

Expert Solution

Futures are exchange traded contracts which have daily settlement and they do not have counter party risks. They have daily settlement in the sense that if you have a futures contract on stock with the settlement price of 100 which is fixed the current price of stock is 90 dollars then as per the guidelines you will be marked with a loss of $10 today when the market closes and not on the settlement date. Same applies for the profit is on the next day price is $110 .

Whereas forwards are traded over the counter and not on any exchange. There is no daily settlement and both the parties in the contract wait for the settlement date in future. So if you buy a contract to deliver $100 (current)w of asset in future at 110. You will not marked with any losses today until the settlement date happens and you have to deliver the asset.

I hope this makes sense.

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jeff jeffy answered 1 year ago

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