Certified Anti-Money Laundering Specialist Certification (CAMS) Practice Exam

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What does OTC stand for in the financial markets?

Over-Time Contracts
Over-The-Counter
Over-The-Course
Obligation To Clear

The correct answer is: Over-The-Counter

In the financial markets, OTC stands for Over-The-Counter. This term refers to a method of trading securities directly between two parties rather than through a centralized exchange. OTC trading typically involves less regulation than exchange-based trading and is commonly used for trading derivatives, currencies, and certain stocks that are not listed on any exchange. One of the main characteristics of OTC markets is that they facilitate transactions that may not meet exchange listing requirements or are conducted by dealers in a decentralized manner. The significance of OTC trading lies in its flexibility and the ability for participants to negotiate the terms of their transactions. This arrangement allows for a wider variety of financial instruments and can provide tailored solutions to meet the specific needs of involved parties. As a result, OTC markets play a crucial role in the overall financial ecosystem, enabling liquidity and diversity in investment options.