Economics · Financial Derivatives
Currency Forwards and Currency Futures are both used for hedging foreign exchange risk, yet they differ significantly in structural and regulatory aspects. Which of the following statements provides the most accurate distinction between a 3-month USD/INR Forward contract and a 3-month USD/INR Futures contract as traded in the Indian financial markets?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Forwards are standardized contracts traded on the exchange, while Futures are customized contracts traded in the over-the-counter (OTC) market.
- 2Forwards require a daily mark-to-market settlement process, while Futures are settled only at the end of the three-month maturity period.
- 3Futures are standardized in terms of lot size and expiry dates and are guaranteed by a clearing house, whereas Forwards are bilateral agreements between a bank and its client with inherent counterparty risk.✓
- 4Forward contracts are regulated by the Securities and Exchange Board of India (SEBI), whereas Futures are governed exclusively by the Foreign Exchange Management Act (FEMA).
Correct answer
Futures are standardized in terms of lot size and expiry dates and are guaranteed by a clearing house, whereas Forwards are bilateral agreements between a bank and its client with inherent counterparty risk.
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