Counterparty risk is greater for exchange-traded derivatives than for over-the-counter derivatives.

Question

Quizplus · Accepted Answer

The statement is false. Counterparty risk is actually lower for exchange-traded derivatives, as they are cleared through a central clearinghouse that acts as a counterparty to both sides of the trade. This eliminates the risk of default by the other party, providing greater security to market participants. In contrast, over-the-counter derivatives are typically traded directly between two parties without the involvement of a central clearinghouse, which can lead to higher counterparty risk.

Counterparty Risk Is Greater for Exchange-Traded Derivatives Than for Over-The-Counter