Over-the-counter credit derivatives are private contractsbetween two companies; is it appropriate for the government to force them to be soldon regulated exchanges like commodities are? Why or why not?

Over-the-counter credit derivatives are private contractsbetween two companies; is it appropriate for the government to force them to be soldon regulated exchanges like commodities are? Why or why not?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter15: Contracting, Governance, And Organizational Form

Section: Chapter Questions

Problem 1.2CE

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Question

Over-the-counter credit derivatives are private contracts
between two companies; is it appropriate for the government to force them to be sold
on regulated exchanges like commodities are? Why or why not?

Expert Solution

Step 1

An OTC {"over-the-counter"} derivative is described as a 'financial contract' arranged between the 2 counterparties but has minimal regulation or intermediation. These derivatives are not listed on an exchange or trade of assets and do not have standardized/ particular terms.

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