BANKING AFFAIRS

Detailed explanation-1: -Which of the following does the most to reduce default risk for futures contracts? Credit checks for both buyers and sellers. Marking to market.

Detailed explanation-2: -Which of the following does the most to reduce default risk for futures contracts? Marking to market.

Detailed explanation-3: -The main advantage of participating in a futures contract is that it removes the uncertainty about the future price of an asset. By locking in a price for which you are able to buy or sell a particular item, companies are able to eliminate the ambiguity having to do with expected expenses and profits.

Detailed explanation-4: -What is Mark to Market (MTM)? Mark to Market (MTM) in a futures contract is the process of daily settlement of profit and losses arising due to the change in the security’s market value until it is held. The MTM calculations are done daily after the trading hours, based on the closing price for the day.

Detailed explanation-5: -Details of futures contracts are made public because they are traded on exchanges, unlike forwards, which are negotiated privately between counterparties. Because futures are regulated, they come with less counterparty risk than forward contracts.