Question: Explain how the use of derivative contracts such as forwards, futures, swaps, and options creates contingent credit risk for an FI. Why do OTC contracts

Explain how the use of derivative contracts such as forwards, futures, swaps, and options creates contingent credit risk for an FI. Why do OTC contracts carry more contingent credit risk than do exchange-traded contracts? How is the default risk of OTC contracts related to the time to and the price and rate volatilities of the underlying assets?

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