AppliedMultiple choice
Futures are not forwards · Part 2 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.
Suppose the asset tends to rise when short-term interest rates rise. Which should be priced higher in theory?
- AThe futures price
- BThe forward price, because it defers all cash flows to the end
- CThey are equal, because the contracts have the same delivery date
- DIt depends on whether the asset’s expected return is above the riskless rate
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