Which of the following involves most credit risk
A. Exchange trading
B. OTC trading with a central clearing party being used
C. OTC trading with bilateral clearing and collateral being posted
D. OTC trading with bilateral clearing and no collateral being posted
D
In the case of both exchange trading and trading using a CCP initial margin and variation margin have to be posted so that the risk of a loss because of a default is low. Bilateral clearing usually involves more credit risk than exchange/CCP trading and credit risk is greater when there is no collateral agreement.
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