General query

Over-the-counter deals are ‘private’ arrangements directly with an institution e.g. a bank.
Exchange traded can be bought and sold on the exchanges.

The most obvious example (and the only example that appears in the exam, other than swaps which are OTC) are foreign currency options.

Traded options can be bought and sold on the foreign exchanges. OTC options are deals arranged directly with a bank and cannot be bought and sold.

I explain this (and give examples) in my free lectures on foreign exchange risk management. Please do not expect me to type out my lectures again here 🙂

The free lectures are all linked from the main Paper AFM page:
https://opentuition.com/acca/afm/