Answer:
a. Delivery is made most often in forwarding contracts.
Explanation:
As in both the two types of contract the delivery of the asset takes place at a predetermined time in future, these are commonly misconstrued by the people. But if you dig a bit deeper, you will find that these two contracts differ in many grounds.
A forward contract is a contract whose terms are tailor-made i.e. negotiated between buyer and seller. It is a contract in which two parties trade in the underlying asset at an agreed price at a certain time in future. It is not exactly same as a futures contract, which is a standardized form of the forward contract. A futures contract is an agreement between parties to buy or sell the underlying financial asset at a specified rate and time in future.
While a futures contract is traded in an exchange, the forward contract is traded in OTC, i.e. over the counter between two financial institutions or between a financial institution or client.
Comparison:
Meaning: Forward Contract is an agreement between parties to buy and sell the underlying asset at a specified date and agreed rate in future.
A contract in which the parties agree to exchange the asset for cash at a fixed price and at a future specified date, is known as future contract.
Forward Contract Futures Contract
What is it? It is a tailor made contract. It is a standardized contract.
Traded on Over the counter, i.e. Organized stock exchange.
there is no secondary market.
Settlement On maturity date. On a daily basis.
Risk High Low
Default As they are private agreement, No such probability.
the chances of default are
relatively high.
Size of contract Depends on the contract terms. Fixed
Collateral Not required Initial margin required.
Maturity As per the terms of contract. Predetermined date
Regulation Self regulated By stock exchange
Liquidity Low High
