6 - exchange traded vs OTC derivatives hedges

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4 Terms

1
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3 advantages of exchange traded

more liquidity

full price transparency

counterparty’s credit risk limited to exchange clearing house

2
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2 disadvantages of exchange traded

margin payments required

standardised contracts

3
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2 benefits of OTC

flexible contracts

no margin required —> collateral depends on counterparty

4
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3 disadvantages of OTC

counterparty credit risk

limited price transparency

higher transaction costs (bc its unique + tailored)