Clearinghouses help to reduce default risk by
A)being the intermediary in trades for buyers and sellers.
B)margin requirements.
C)marking to market.
D)all of the above.

Question

Quizplus · Accepted Answer

Clearinghouses play a crucial role in minimizing default risk. They act as intermediaries between buyers and sellers, reducing counterparty risk. Margin requirements ensure that market participants have sufficient collateral to cover potential losses, reducing the risk of default. Additionally, clearinghouses employ marking to market, which requires that contracts be settled at their current market value, further reducing the risk of default. Therefore, all of the above options are correct.

Clearinghouses Help to Reduce Default Risk by