Explanation:
Correct Answer: B
Explanation: B is correct. Exchange-traded options are standardized while OTC options can be tailored to the specific needs of the customer.
A is incorrect. Most (though not all) exchange-traded options are American. By contrast, many of the options traded in the over-the-counter market are European.
C is incorrect. The size of the typical options transaction in the OTC market is large and the options often last longer than those traded on exchanges.
D is incorrect. Options on individual equities are primarily traded on exchanges, while options in FX and interest rate markets are primarily traded in OTC markets.
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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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