Question
If a derivative is privately negotiated bilaterally with customized terms, how should you classify the market?
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Answer
Over-the-counter, or OTC.
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Question
Why is counterparty risk usually lower in exchange-traded derivatives than in OTC derivatives?
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Answer
A clearinghouse guarantees performance instead of relying on a bilateral counterparty.
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Question
In derivatives, what makes an asset, rate, or index the underlying?
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Answer
The derivative's value is derived from it.
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Question
What event in futures trading signals that margin protection is being enforced?
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Answer
A margin call after the account falls below maintenance margin.
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