3

Question 1

What are the problems with forwards

Answer 1

Counterparties must check each others credit worthiness
Inherently credit consuming
Only people with good credit can use
Cannot be closed out easily prior to maturity

Question 2

What is a futures contact

Answer 2

A forward is an obligation to trade in an asset at a predetermined price at a predetermined time

Question 3

What are the key features of futures

Answer 3

Available on a wide range of underlying assets
Exchange traded
Specifications need to be define ie what, where, when
Settled daily
Most contacts closed out before maturity
If not usually settled by delivering assets underlying the contract

Question 4

Name 3 common types of users in futures markets

Answer 4

Hedgers
Arbitragers
Speculators