Please choose one answer and explain briefly.

The relationship of forwards and futures is best represented by the following statement(s) (a) If futures price movements and interest rate movements are positively correlated, then futures prices will be higher than forward prices. (b) If futures price movements and interest rate movements are negatively correlated, then futures prices will be lower than forward prices. (c) If futures price movements and interest rate movements are uncorrelated, then futures and forward prices will coincide. (d) All of the above.

Why?

Counterparty risk in a futures contract is lower than in a forward contract because (a) The participants in the futures market are better funded. (b) The futures contract is marked-to-market on a daily basis. (c) The futures exchange bears the counterparty risk. (d) The forward market does not charge commissions that may be used to offset the risk of counterparty failure.

Why?

Rolling over short-dated futures contracts is the same as taking one long-dated futures contract if (a) The interest rates are constant. (b) The average change in the spot price is zero over the life of the contract. (c) There is daily mark-to-market of both the short-dated and long-dated contracts. (d) The size (notional value) of the open position in the futures does not change over the horizon of the transactions.

Why?

A month ago, the price of an IBM stock was $110 and its volatility was 28%. Today, its price is still $110 but its volatility has gone up to 40%. If the one-month interest rate has not changed over the last month and IBM stock does not pay any dividends (i.e., there are no costs or benefits of carry,) then: (a) The one-month forward prices of IBM today equals the one-month forward price a month ago (b) The one-month forward price of IBM today is greater than the one-month forward prices a month ago by $10 (c) The one-month forward prices of IBM today is lower than the one-month forward price a month ago by $10 (d) The one-month forward price of IBM today is $44

Why?