Skip to content

CFA Level I · CFA Level I Exam · Forward Commitment and Contingent Claim Features and Instruments

Which statement about exchange-traded versus over-the-counter derivatives is most accurate?

Over-the-counter contracts are customized and typically carry greater counterparty credit risk because they are privately negotiated without a clearinghouse guarantee. Exchange-traded contracts are standardized and cleared, which reduces credit risk.

  1. AExchange-traded contracts are customized and carry greater counterparty credit risk
  2. BOver-the-counter contracts are customized and typically carry greater counterparty credit riskCorrect
  3. COver-the-counter contracts are standardized and are guaranteed by a clearinghouse

Explanation

OTC derivatives are privately negotiated and customized, with exposure to the counterparty's default. Exchange-traded contracts are standardized and a clearinghouse guarantees performance, reducing credit risk.

Did you get it right without looking?

One question tells you little. A timed set on Forward Commitment and Contingent Claim Features and Instruments shows your real accuracy, how long you take and where you lose marks.

Practise Forward Commitment and Contingent Claim Features and InstrumentsFree diagnostic mock

More Forward Commitment and Contingent Claim Features and Instruments questions