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Answer: The exposures on a CCP are more concentrated and therefore their credit risk is better understood than bilateral transactions
**Correct answer: D.** A CCP concentrates exposures among clearing members, which makes the resulting counterparty credit risk more transparent and easier to monitor than a web of bilateral exposures. - **A** is not the best answer here: a CCP can improve standardization and netting, but that does not automatically mean a CCP position is easier to exit in all cases. - **B** is false because CCP-cleared positions typically require both initial and variation margin. - **C** is false because clearing through a CCP does not turn transactions into uncleared trades; it does the opposite by centralizing clearing. So the true advantage stated here is that the concentrated exposures make credit risk better understood.
Author: Manit Arora
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Q-21.11.1. In comparison to a bilateral transaction, which of the following statements is TRUE as an advantage of a central counterparty (CCP)?
A
It is easier to exit a CCP position
B
There are no margin requirements for a CCP position
C
The CCP transactions legally mutate into uncleared transactions which reduces systemic risk
D
The exposures on a CCP are more concentrated and therefore their credit risk is better understood than bilateral transactions
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