Deck 1 – Instrument & Market Features

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Question

If a contract is a forward, swap, or OTC option, is it typically OTC or exchange-traded?

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Answer

OTC.

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Question

Which underlying asset class is being referenced when a derivative payoff depends on a firm's default?

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Answer

Credit.

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Question

Why is counterparty credit risk highest in OTC contracts?

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Answer

Performance depends on the bilateral counterparty's ability to pay.

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Question

How does market transparency generally differ between exchange-traded and OTC derivatives?

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Answer

Exchange-traded markets have public prices; OTC markets are private.

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