Which of the following is an out-of-the-money counterparty?
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)counterparty that is currently at a disadvantage in terms of cash flows

Question

Quizplus · Accepted Answer

An out-of-the-money counterparty is a counterparty that is currently at a disadvantage in terms of cash flows. They have a negative net present value in the current situation. Therefore, the correct choice is D - counterparty that is currently at a disadvantage in terms of cash flows. The other options do not necessarily imply that the counterparty is out-of-the-money.

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