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    Question

    What are the Over the counter (OTC) derivatives considered risky?

    A They do not follow any formal rules or mechanisms Correct Answer Incorrect Answer
    B They are not settled on a clearing house Correct Answer Incorrect Answer
    C There is no formal margining system Correct Answer Incorrect Answer
    D B and C Correct Answer Incorrect Answer
    E All of the above Correct Answer Incorrect Answer

    Solution

    "Over-the-counter" can be used to refer to stocks that trade via a dealer network as opposed to on a centralized exchange (like NSE, MCX, etc.). Certain securities (like unlisted shares) and derivatives (like forwards contracts) are traded by broker-dealers who negotiate directly with one another. Unlike Futures and Options contract which are traded on exchange involving a clearing corporation between Buyer and seller, Swaps & Forward Contracts are traded OTC.

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