Question
Which of the following are the difference(s) between
swaps and futures contracts? 1. Swaps are typically short term, whereas futures contracts tend to extend over several years. 2. A futures contract involves only one future transaction, whereas a swap typically involves several forward transactions. 3. Swaps are not usually marked to market, whereas futures contracts are marked to market.Solution
A swap is an agreement between two counter parties to exchange cash flows in the future. It is traded over the counter (OTC) and is in the nature of multiple forward contracts. Since it is traded OTC, it is not marked to market. Futures contract is exchange traded and it marked to market.
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