True or False: Futures are customizable contracts while Forwards are not. True False

True or False: Futures are customizable contracts while Forwards are not.

True

False

Expert Solution

No, the statement "Futures are customizable contracts while Forwards are not" is false. In order to understand this we need to understand the meaning of forward and future contracts.

A forward contract is an agreement between a uyer and seller to trade on an asset on a future date. Therefore here both the parties are responsible for fixing the terms and conditions of the contract. Moreover the forward contract matures on the day as per the contract, which is the final settlement date.

In this case as both parties can decide about the terms and conditions of the contract, so the forward contract is a customized contract on which both the parties can fix their own conditions and the agreement settles at the end of the agreement period. This type of contract carries risk as this contract remains between only two parties that is the buyer and the seller and there is private agreement.

Future contract on the other hand are uncustomizable contract in which both the buyer and seller come into a standardized agreement in which all the terms and conditions are fixed and cannot be customized.

As the future contract is traded on exchange, therefore there are more safer and this contract settles at the end of the agreement period. This type of contract is the one which exists in a standard form as the contract trades on the exchange, so the parties involved in the agreement cannot add their own specified terms and conditions as can be done in the forward contract.

So, we can learn here that Forward contract is customizable contract and future contract is not a customizable contract between the parties involved in the contract.

jeff jeffy answered 1 year ago

Why are foreign currency futures contracts more popular with individuals and banks while foreign currency forwards...

Why are foreign currency futures contracts more popular with individuals and banks while foreign currency forwards are more popular with businesses? [6 marks]

When a comparison is made between futures and forwards contracts,it is said that futures are more...

When a comparison is made between futures and forwards contracts,it is said that futures are more liquid ,but forwards are more flexible.Explain the meaning of the statement and comment on how difference in contract liquidity and design flexibility might influence an investors preferences in choosing one instrument over the other.

Options contracts are an alternative to futures and forwards contracts to hedge FX risk. Why would...

Options contracts are an alternative to futures and forwards contracts to hedge FX risk. Why would investors prefer to use options rather than futures or forwards? Under which future outcomes do options provide an advantage relative to forwards or futures contracts? Why might managers choose not to enter into options contracts?

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

Insurance Policies are "contracts of indemnification" True or false?

a) Explain a foreign currency futures contract and outline the differences between futures and forwards. b)...

a) Explain a foreign currency futures contract and outline the differences between futures and forwards. b) The Chicago Mercantile Exchange (CME) and the New York Board of Trade (NBOT) operate futures markets in currencies in the following pairs US$/pounds and US Dollar/Pound. The value standardize size of a sterling futures contract is 6,500 pounds. Describe how a UK company that expects to received US$800,000 in three months time can use a futures contract to hedge transaction exposure if the following...

A.1 TRUE OR FALSE QUESTIONS It is a myth that contracts of employment need to be...

A.1 TRUE OR FALSE QUESTIONS It is a myth that contracts of employment need to be written. TRUE b. FALSE Absenteeism is a major social problem with cost for the individual worker alone. a. TRUE b. FALSE The purpose of job posting is to inform employees about job vacancies a. TRUE b. FALSE In selection process validity refers to the extent to which a predictor correlates with criteria identified as measuring job performance. . a. TRUE b. FALSE A structured...

Choose true or false for each statement regarding the resistance of a wire. true false While maintaining...

Choose true or false for each statement regarding the resistance of a wire. true false While maintaining a constant voltage V, the current I increases when the length L of a wire increases. true false The resistance is proportional to the cross-sectional area A of the wire. true false While maintaining a constant voltage V, the current I decreases when the resistivity ρ of a wire decreases. Choose true or false for each statement regarding resistors in a circuit. true false If you connect...

How are forwards and/or futures used and what is an advantage and disadvantage of their use...

How are forwards and/or futures used and what is an advantage and disadvantage of their use from a company perspective. From an investor perspective? Discuss the importance of Forwards and Futures as they pertains to a MNC giving an example of its use. Do you support their use and why? Try to provide a real example.

TRUE OR FALSE-Law in Obligation and Contracts The period in an obligation always refers to the...

TRUE OR FALSE-Law in Obligation and Contracts The period in an obligation always refers to the future. If the debtor fails to perform an obligation to sing, the creditor may compel the debtor to comply with the obligation. If the obligation consists in the delivery of a determinate thing, the debtor who incurs in delay shall not be responsible for loss due to fortuitous event. In an obligation to give a determinate thing which is subject to a suspensive...

Question