Outturn and Over the counter: Difference between pages

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1.  
(OTC).
Direct dealing between counterparties - for example corporates and banks - which allows for tailoring of financial contracts but which also exposes the parties to credit risk.  


'Outturn' market rates are the rates or prices which actually occur in the relevant market - in other words the rates which 'turn out' to be the case in the market.  
Exchange trading is the alternative to OTC dealing. Exchange traded instruments are standardised, and less flexible, but the interposition of the exchange substantially reduces credit risk.


Outturn market rates may be compared with, for example, forecast rates, expected rates, or hedged rates.  
More specifically, this is a market for the trade of securities that are not listed on the stock exchange consisting of bilateral dealing contracts between brokers. As opposed to an organised stock exchange, prices on the OTC markets are set by direct negotiation between dealers and not by an auction system.


For example if hedging a borrowing with an interest rate option with a strike price of 6%.  
The OTC market is a market for companies which do not fulfil the listing requirements of the official stock exchange markets, or for derivatives or other financial instruments that do not have a liquid market.


At an outturn market rate of 8% the borrower's option would be exercised (and pay out to the holder assuming it was cash-settled).
== See also ==
 
* [[Exchange traded]]
At an outturn market rate of 5% the borrower's option would lapse worthless.
* [[Exchange-traded option]]
 
* [[Listing]]
Outturn rates in this sense are related to - but different from - the all-in hedged rates achieved.
* [[NASDAQ]]
 
* [[Security]]
The ''hedged rate achieved'' means the total income or expense resulting, taking account both of the underlying exposure and of the hedging instrument.
* [[Stock]]
 
So continuing the same example, and assuming an option premium paid of 0.5%.
 
::i. At an outturn rate of 5%, the hedged rate borrowing achieved = 5% market rate + 0.5% option premium = 5.5%.
 
::ii. At an outturn rate of 8%, the hedged borrowing rate achieved = 6% option strike price + 0.5% option premium = 6.5%.


2.
The result or the net result of any activity.
3.
The all-in hedged rate or outcome achieved, as a result of hedging activities.
== See also ==
* [[Expectations theory]]
* [[Hedging]]

Revision as of 14:20, 23 October 2012

(OTC). Direct dealing between counterparties - for example corporates and banks - which allows for tailoring of financial contracts but which also exposes the parties to credit risk.

Exchange trading is the alternative to OTC dealing. Exchange traded instruments are standardised, and less flexible, but the interposition of the exchange substantially reduces credit risk.

More specifically, this is a market for the trade of securities that are not listed on the stock exchange consisting of bilateral dealing contracts between brokers. As opposed to an organised stock exchange, prices on the OTC markets are set by direct negotiation between dealers and not by an auction system.

The OTC market is a market for companies which do not fulfil the listing requirements of the official stock exchange markets, or for derivatives or other financial instruments that do not have a liquid market.

See also


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