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CFA Level 1
Derivatives

Understanding OTC Derivatives

Easy Derivative Markets And Instruments Over-the-counter Derivatives

In the context of derivative markets, over-the-counter (OTC) derivatives are financial instruments that are traded directly between parties without being listed on an exchange. These can include instruments such as swaps, forwards, and options. Due to the nature of OTC trading, these derivatives have unique characteristics and risks compared to exchange-traded derivatives. Which of the following statements is true regarding OTC derivatives?

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