Answer: less desirable to holders of long positions than are forwards.

When futures prices are **positively correlated with interest rates**, futures contracts are **less desirable to long position holders** than forward contracts. **Why?** - **Futures contracts** are **marked to market daily**, creating interim cash flows. - With **positive correlation**: - Gains occur when interest rates are **high** - Losses occur when interest rates are **low** Although this seems favorable, the key CFA insight is that **forward contracts delay all cash flows until maturity**, eliminating reinvestment and borrowing risk. Because futures force early cash flows whose value depends on interest rates, this **timing risk slightly disadvantages the long position** relative to a forward. ### ✅ Correct Answer: **A** **Exam tip:** Positive correlation → futures **less attractive** to the long Negative correlation → futures **more attractive** to the long

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