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Answer: Options traded OTC have flexible terms, while the terms of exchange-traded options are generally standardized.
## Explanation The key differences between exchange-traded and OTC options are: **Exchange-traded options**: - Standardized terms (strike prices, expiration dates, contract sizes) - Centralized clearing and settlement - High liquidity and transparency - Primarily American-style (can be exercised anytime before expiration) **OTC options**: - Flexible, customized terms - Negotiated directly between parties - Higher counterparty risk - Can be tailored to specific needs **Analysis of options**: - **A**: Incorrect - Most exchange-traded options are American-style, not European-style - **B**: **CORRECT** - OTC options have flexible terms while exchange-traded options are standardized - **C**: Incorrect - OTC options often have longer maturities than exchange-traded options - **D**: Incorrect - Foreign exchange and interest rate options are primarily OTC, while individual equity options are primarily exchange-traded
Author: LeetQuiz Editorial Team
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A junior analyst at a large bank is examining an existing portfolio of option contracts. The analyst notices that the portfolio holds a large number of both exchange-traded and OTC positions and focuses on the similarities and differences between the two. Which of the following would the analyst most likely identify as a difference between exchange-traded options and OTC options?
A
Most exchange-traded options are European-style, while most options traded OTC are American-style.
B
Options traded OTC have flexible terms, while the terms of exchange-traded options are generally standardized.
C
Exchange-traded options typically have longer maturities than those traded OTC.
D
Foreign exchange and interest rate options are primarily exchange-traded, while options on individual equities are usually OTC.
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