Answer: Trades are made in such a way as to reduce credit risk.

## Explanation Exchange trading systems provide several advantages over over-the-counter (OTC) trading, and one of the key benefits is **credit risk reduction**. Here's why option B is correct: ### Key Advantages of Exchange Trading Systems: 1. **Credit Risk Mitigation**: - Exchanges act as central counterparties (CCPs) for all trades - They guarantee the performance of both parties in a transaction - This eliminates counterparty risk that exists in bilateral OTC trades - Clearing houses provide netting and margin requirements to manage risk 2. **Standardization**: - Terms ARE specified (contrary to option A) - exchanges use standardized contracts - Standardization increases liquidity and reduces negotiation costs 3. **Transparency**: - Prices and volumes are publicly available - Market participants can see the depth of the market 4. **Regulatory Oversight**: - Exchanges are heavily regulated - Provides investor protection and market integrity ### Why Other Options Are Incorrect: - **Option A**: Incorrect - exchanges have standardized terms and specifications - **Option C**: Incorrect - participants have LESS flexibility to negotiate on exchanges due to standardization - **Option D**: Incorrect - while some communications may be recorded, this is not a primary advantage of exchange trading The reduction of credit risk through central counterparty clearing is one of the most significant benefits of exchange trading systems.

Author: LeetQuiz .