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    Question

    Which of the following is an advantage of an exchange

    trading system in a derivative market?
    A Terms and conditions of the contract are not specified in the agreement Correct Answer Incorrect Answer
    B Participants have the flexibility to negotiate the terms and conditions Correct Answer Incorrect Answer
    C There is less probability of credit risk Correct Answer Incorrect Answer
    D A and B Correct Answer Incorrect Answer
    E All of the above Correct Answer Incorrect Answer

    Solution

    The exchange trading system reduces the probability of credit risk. If there is any default by either of the parties, the loss is borne by the clearing house. Therefore, there is less credit risk.

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