IFoA SP6 Practice Questions - IFoA SP6 Financial Derivatives Specialist Principles Exam

Which feature most clearly distinguishes an exchange-traded futures contract from an over-the-counter forward contract?

Futures are standardised and subject to daily margining through a clearing house, whereas forwards are bespoke with counterparty credit exposure Forwards eliminate counterparty risk because they are guaranteed by an exchange Futures cannot be used to hedge while forwards can Futures are settled only at maturity whereas forwards are marked to market daily

Correct Answer:

Futures are standardised and subject to daily margining through a clearing house, whereas forwards are bespoke with counterparty credit exposure

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