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:

Accounts Payable

A liability account that records amounts a company owes to suppliers for goods or services purchased on credit.

Withdrawals

Amounts of money taken out from a business by its owner(s) for personal use, not considered business expenses.

Credit Side

The right side of an accounting ledger where increases in liabilities, equity, and income or decreases in assets and expenses are recorded.

Equipment

Tangible property used in the operation of a business that is not intended for sale, typically having a useful life longer than one year.