Question

Which of the following is FALSE on over-the-counter (OTC) derivatives and exchange traded derivatives? Group of...

Which of the following is FALSE on over-the-counter (OTC) derivatives and exchange traded derivatives?

Group of answer choices

A) OTC derivatives are privately negotiated contracts.

B) Exchange traded derivatives are marked to market every day (daily marking to market).

C) Exchange traded derivatives have higher default risk than OTC derivatives.

D) Exchange traded derivatives are more liquid than OTC derivatives.

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Answer #1

OTC markets can have negotiated contracts. Also, these are not market to market whereas, exchange traded derivative are marked daily. Exchange traded derivatives can be easily liquidated by taking an opposite position as opposed to OTC derivatives. Exchange traded derivatives are safe and do not have default risk. Hence, the only correct option is-

C) Exchange traded derivatives have higher default risk than OTC derivatives.

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