Characteristics of Futures Contracts

Very Easy Forward Pricing And Valuation Futures Contracts

John is studying the characteristics of futures contracts as part of his CFA Level 2 preparation. He learns that futures contracts are agreements to buy or sell an asset at a predetermined price at a specified time in the future. The contract is standardized and traded on an exchange, which adds a layer of security and reduces counterparty risk.

Which of the following statements about futures contracts is true?

Futures contracts require an upfront payment at the initiation of the contract.

Futures contracts are settled daily through marking to market.

Futures contracts can only be traded on over-the-counter markets.

Hint

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