OTC Contracts, Documentation and Collateral
Analyse bilateral forwards, swaps, options, credit products and their legal and operational controls.
How to prepare for the Investment Advice Diploma
Build UK regulation, integrity, investment, risk and tax first; then apply those foundations to the one technical option aligned with your role. The original multiple-choice practice tests knowledge, calculations and advisory judgement without reproducing recalled or secure CISI questions.
Core concepts
Concept 1
Compare forwards, FRAs, CFDs, swaps and OTC options.
Exam cue: Identify bilateral obligations.
Concept 2
Explain credit derivatives and structured products.
Exam cue: Map cash flows and counterparty risk.
Concept 3
Use master agreements, collateral and processing to manage risk.
Exam cue: Apply documentation and collateral controls.
Risk pitfalls and guardrails
Assuming bespoke means unregulated.
Guardrail: Do not combine the five displayed units into one exam, infer permission from qualification, use stale annual figures or ignore the selected technical route.
Ignoring close-out netting.
Guardrail: Do not combine the five displayed units into one exam, infer permission from qualification, use stale annual figures or ignore the selected technical route.
Confusing market risk with counterparty risk.
Guardrail: Do not combine the five displayed units into one exam, infer permission from qualification, use stale annual figures or ignore the selected technical route.
Memory anchors
ISDA master agreement
A standard legal framework commonly used to govern multiple OTC derivative transactions.
Collateral
Assets or cash provided to reduce counterparty credit exposure.
Interest-rate swap
An agreement to exchange interest cash flows calculated on a notional amount.
Checkpoint rule
Do the check-up only after you can summarize each concept in one sentence and identify one dangerous pitfall from memory.
Knowledge Check (after reading)
Short check-up to confirm understanding of this module.
Check-up Questions
What distinguishes an OTC forward from an exchange future?
A UK importer must pay US dollars in three months. Which forward hedge is directionally appropriate?
Answer all questions to submit.
Next step personalized recommendations
Continue learning
Move forward only after this module is stable.
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