All exchange-traded options are settled through a clearing house but over-the-counter options are not and are thus subject to greater ________ risk.
A) exchange rate
B) country
C) counterparty
D) none of the above

Question

Quizplus · Accepted Answer

Counterparty risk refers to the risk that one party in a financial contract may default on their obligations to the other party. In the case of over-the-counter options, there is no clearing house involved to ensure that both parties fulfill their obligations, which increases the risk of one party defaulting. Exchange-traded options, on the other hand, are settled through a clearing house, which acts as an intermediary between the two parties and helps to minimize counterparty risk. Therefore, the correct answer is C - counterparty risk.

All Exchange-Traded Options Are Settled Through a Clearing House but Over-The-Counter