20-58 Counterparty credit risk is more prevalent for exchange-traded derivatives than over-the-counter (OTC)contracts because the bank has more control of its OTC contracts.

Question

Quizplus · Accepted Answer

Counterparty credit risk is actually more prevalent for OTC contracts because there is no centralized clearinghouse and the bank has less control over the counterparty's ability to fulfill their obligations. Exchange-traded derivatives, on the other hand, are cleared through a central clearinghouse which reduces counterparty credit risk.

20-58 Counterparty Credit Risk Is More Prevalent for Exchange-Traded Derivatives