Which of the following is an out-of-the-money counterparty in the derivative securities market?
A)Counterparty in a loan commitment contract.
B)FI that trades in securities prior to their actual issue.
C)Counterparty that is currently at an advantage in terms of cash flows.
D)FI that guarantees to underwrite the performance of the buyer of the guaranty.
E)Counterparty that is currently at a disadvantage in terms of cash flows.

Question

Quizplus · Accepted Answer

An out-of-the-money counterparty in the derivative securities market is one that is currently at a disadvantage in terms of cash flows. This means that they have a current exposure to a loss if the derivative contract were to be exercised. Therefore, the only option listed that fits this definition is E: Counterparty that is currently at a disadvantage in terms of cash flows.

Which of the Following Is an Out-Of-The-Money Counterparty in the Derivative