- CFA Exams
- CFA Level I Exam
- Study Session 12. Equity Investments (1)
- Reading 36. Market Organization and Structure
- Subject 2. Assets and Contracts
CFA Practice Question
Which of the following statements about forward and future contracts is FALSE?
B. A predetermined price to be paid for a good is a necessary requirement in the terms of a forward contract.
C. The future value of a financial derivative depends on the value of its underlying asset.
D. The primary difference between forwards and futures is that only futures are considered financial derivatives.
A. A future requires the contract purchaser to receive delivery of the good at a specified time.
B. A predetermined price to be paid for a good is a necessary requirement in the terms of a forward contract.
C. The future value of a financial derivative depends on the value of its underlying asset.
D. The primary difference between forwards and futures is that only futures are considered financial derivatives.
Correct Answer: D
Forwards and futures are similar and serve similar needs. Both are considered types of financial derivatives in that payoffs depend on another financial instrument or asset. The primary difference is that forwards are designed for the needs of the particular parties entering the contract, whereas futures are standardized contracts.
User Contributed Comments 4
| User | Comment |
|---|---|
| viruss | Well A is also false because there are cash-settled future contracts that doesn't involved physical delivery ... |
| terryn | A is true - A futures contract requires delivery does not mean it cannot be settled with cash. |
| farhan92 | not your customary east last question... |
| ascruggs92 | A is true - delivery doesn't have to be physical, banks can wire money into your bank account. |