Explain How the Clearing Corporation Reduces the Risk It Faces

question 15

Essay

Explain how the clearing corporation reduces the risk it faces in the futures market through the use of margin accounts and marking-to-market.

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Definitions:

Compounded Quarterly

A method of calculating interest where it is added to the principal amount every three months.

Amortized

The process of paying off a debt through regular payments over a period of time, where each payment covers both interest and a portion of the principal amount.

Compounded Semi-annually

The process of calculating interest on both the initial principal and the accumulated interest of a deposit or loan every six months.

Monthly Payments

Regular payments made once a month, often in the context of loans or rent.