easy · FRM Part 1
What is a major disadvantage of an OTC forward for a participant who needs to exit their position early?
- The exchange may impose heavy penalties for early closure.
- It can be difficult and expensive to find a party to take over the contract or to negotiate a cancellation with the original counterparty.
- The daily margin calls make it too expensive to hold the position for a short time.
- The contract is automatically cancelled if the participant's credit rating falls.
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