Financial Risk Manager Part 1
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A risk manager at an investment bank is examining the forward and futures contracts the bank's clients use as hedging instruments. The manager compares the way the two types of contracts are priced, how profits and losses are calculated, and how decisions to offset or deliver against the contracts are made. Which of the following statements is correct?
A
When the price of an asset is positively correlated with interest rates, the forward contract will typically have a higher price than the futures contract.
B
If interest rates are higher than the income generated by a financial asset, delivery of the asset against the futures contract will take place on the latest date possible.
C
The daily profit and loss on forward and futures contracts differ, since futures contracts realize profits and losses each day while forward contracts realize them at maturity.
D
Prices on similar forward and futures contracts will be the same due to the no-arbitrage relationship between forwards and futures.