Study Notes: Exchanges and OTC Markets

Chapter 5. Exchanges and OTC Markets Study Notes cover the following learning objectives:

* Describe how exchanges can be used to alleviate counterparty risk.
* Explain the developments in clearing that reduce risk.
* Describe netting and describe a netting process.
* Describe the implementation of a margining process and explain the determinants of initial and variation margin requirements.
* Compare exchange-traded and OTC markets and describe their uses.
* Identify the classes of derivative securities and explain the risk associated with them.
* Identify risks associated with OTC markets and explain how these risks can be mitigated.
* Describe the role of collateralization in the over-the-counter market and compare it to the margining system.
* Explain the use of special purpose vehicles (SPVs) in the OTC derivatives market.

After reviewing the notes, you will be able to apply what you learned with practice questions.

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