An OTC contract allows both parties involved to agree to the terms exactly as they please, whereas ETDs are standardised, with set amounts, expiry dates and trading mechanisms. The settlements that occur over these contracts can be via cash or physical, both having their benefits and drawbacks. An option is essentially a one-sided version of the forward contract.
Key learning objectives:
Define OTC and ETDs
Discuss the pros and cons of physical vs cash settlements
What is an option, and when is it exercised?
Introduction to Interest Rate Swaps and Use Cases
David Leeming • 17:58