Practice Quiz

FRM Financial Risk Manager Practice Test

Category - Contract

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When stocks are traded via a dealer network as opposed to on a centralized exchange, what is the deal called?
  1. A futures contract.
  2. A swap contract.
  3. An option contract.
  4. An over-the-counter contract.
Explanation
This type of deal is called an over-the-counter (OTC) contract.

Key Takeaway: Generally, small companies choose to trade stocks over the counter because they are unable to meet exchange listing requirements. These stocks are traded in an informal exchange rather than on a formal exchange such as the NYSE, TSX, AMEX, etc.
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