Ultimate access to all questions.
Answer-first summary for fast verification
Answer: Options traded OTC have flexible terms, while the terms of exchange-traded options are generally standardized.
## Explanation The correct answer is **B** because: - **Exchange-traded options** are standardized contracts with fixed terms (strike prices, expiration dates, contract sizes) to facilitate trading on organized exchanges - **OTC (Over-the-Counter) options** have flexible, customizable terms that can be negotiated between counterparties to meet specific needs Let's examine why the other options are incorrect: - **A** is incorrect because most exchange-traded options are actually American-style (exercisable anytime before expiration), while many OTC options can be European-style - **C** is incorrect because exchange-traded options typically have standardized maturities (often shorter-term), while OTC options can have longer, customized maturities - **D** is incorrect because foreign exchange and interest rate options are commonly traded both on exchanges and OTC, while individual equity options are primarily exchange-traded The key distinguishing feature is that OTC options offer flexibility in contract terms, while exchange-traded options are standardized for liquidity and ease of trading.
Author: LeetQuiz .
No comments yet.
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.