Describe the role of clearing house in futures market-02170
This subjective question is related to the book/course
vu mgt613 Production / Operations Management.
It can also be found in
vu mgt613 Mid Term Solved Past Paper No. 1.
Question 1: Describe the role of clearing house in futures market.
Answer:
The clearinghouse for futures markets operates in the same way as the clearinghouse for options. Buyers and sellers settle with the clearinghouse, not each other. Thus, the clearinghouse, and not- another investor, is actually on the other side of every transaction and ensures that all payments are made as specified. It stands ready to fulfill a contract if either buyer or seller defaults, thereby helping to facilitate an orderly market in futures. The clearinghouse makes the futures market impersonal, which is the key to its success, because any buyer or seller can always close out a position and be assured of payment.
