Exchange-traded derivatives have high credit (i.e., counterparty) risk compared to

OTC-traded derivatives.

Indicate whether the statement is true or false

False. Exchange-traded derivatives have very low credit risk because the entire exchange clearing house would have to fail for contracts not to be honored. Similarly, customer credit risk is low because of margin and mark-to-market requirements imposed by the exchange. By contrast, OTC contracts have much higher credit risks because these risks are based on the default risks of the individual counterparties.