Question

Which of the following statements is correct?

Multiple Choice

• Some futures have credit risk.

• Futures have no credit risk.

• Futures have substantial credit risk.

• The credit risk is dependent on market price.

Answer 1

The answer is as follows:

The correct statement is: Futures have no credit risk. Explanation: Some futurres have credit risk is an incowed statement as all feltenes contod are standardised and exchange traded. Hence, futures donot hove credit risk a futures contrad specified and futures have no credit risk is a correct statement as a is an agreement between two porties to buy or sell a standardised quantity and quality of an asset at a certain time in future at a price agreed upon at the time of entering into the controck on the futures exchange. So credit risk is eliminated due to existence of Clearing Coopera- tion which gives guarantees against credit riskie e default risk by taking both sides of the toode and marking to market their positions every night.

· fufuner have substantial credit risk is an incorred statement as future contracts are standardized and exchange trade. A forward contract has credit risk because they contract and not standardised as they que OTC Cice. Over the counter) in nature. are customised The coedit risk is dependent on market price is an incorred statement as credit risk i.e. Counter poroty risk arises if one of the parties involved in a contract such as buyer or dealer default on the contract . .: A forward contract has counter booty misk i.e. credth and not futures contract or seller