FoundationMultiple choice
Futures are not forwards · Part 1 of 3
A forward contract and a futures contract on the same asset have the same delivery date. The futures is marked to market every day with cash variation margin; the forward settles once, at delivery.
The asset rises steadily through the first week. What difference in cash flows does a long position see between the two contracts?
- AOnly the futures long receives cash along the way
- BBoth pay out the gain each day, as both are priced off the same asset
- CThe forward long is paid daily and the futures long is paid only at the delivery date
- DNeither pays anything, since both only settle once at the end of the contract
The worked solution is in Premium
The answer, the full working and the one idea to take away – for this and all 1,322 questions in the bank. Answer it in practice and your working is marked, with a known mistake named when you make one.
Learn the method
More time value, rates and linear products questions
- What happens to the basis – spot minus futures – as a futures contract approaches expiry?Foundation
- A forward on a stock that pays a dividend, part 1 of 3Foundation
- An index is at 4,000, rates are 5% and the dividend yield is 2%, both…Applied
- A commodity futures curve slopes upward.Applied
- A stock is at $100 and pays a $3 dividend in six months.Applied
- Spot is 1.10 dollars per euro, the one-year dollar rate is 5% and the euro rate is 3%.Applied