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Derivatives marketsƒ 128

Over-the-counter markets

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non-standardized products; tailor made contracts

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telephone or electronic trading

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relative high transaction cost

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relative high credit risk/default risk

Ä

illiquidity

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Exchange-traded markets

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standardized products

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trading floor (open outcry system) or electronic trading

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relative low transaction cost

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virtually no credit risk/default risk

Ä

liquidity

Derivative securities: Introduction