4). (Margin requirements and marking to market) Discuss how the exchange require

Question

4). (Margin requirements and marking to market) Discuss how the exchange requirements that mandate traders to put up collateral in the form of a margin requirement and to use this account to mark their profits or losses for the day serve to eliminate credit or default risk.

Fill in the blanks that make the following sentence true.

Because _________to post margin when they enter into a futures contract and because they mark to market_____________, we are _____________ the party and the counterparty to the contract have already posted the gain or loss to the other and the risk of default ___________ .

Explanation / Answer

both parties have

on the delivery date

is thereby negated

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