Characteristics of OTC Derivatives

Very Easy Derivative Markets And Instruments Over-the-counter Derivatives

Over-the-counter (OTC) derivatives are financial contracts that are traded directly between two parties without going through an exchange or other intermediaries. These derivatives can include options, forwards, swaps, and other tailor-made contracts.

Which of the following statements accurately describes a characteristic of OTC derivatives?

OTC derivatives are always standardized contracts.

OTC derivatives are individually negotiated and customized.

OTC derivatives can only be traded on formal exchanges.

Hint

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