CFA Level I · CFA Level I Exam · Derivative Benefits, Risks, and Issuer and Investor Uses
Compared with an over-the-counter (OTC) forward contract, an exchange-traded futures contract is most likely to feature:
An exchange-traded futures contract most likely features a clearinghouse that guarantees performance. Futures are standardized and traded on an exchange, with the clearinghouse acting as counterparty to both sides. Customization and bilateral credit exposure describe OTC forwards instead.
- Aa clearinghouse that guarantees performanceCorrect
- Bterms customized to each counterparty
- Cbilateral credit exposure between the parties
Explanation
Exchange-traded derivatives are standardized and a clearinghouse stands between buyer and seller, guaranteeing performance. Customized terms and direct bilateral credit exposure are characteristics of OTC contracts.
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