Standardization of derivative contracts:
A)Result in increased risk for the parties involved.
B)Makes them more difficult to understand and therefore leads to increased misuse.
C)Makes the premiums involved with these contracts increase.
D)Leads to greater liquidity and lower risk.

Question

Quizplus · Accepted Answer

Standardization of derivative contracts leads to greater liquidity as they become easier to trade and exchange. This, in turn, leads to lower risks as parties can easily offset their positions. Additionally, standardization allows for easier comparison of different contracts and can aid in price discovery.

Standardization of Derivative Contracts