An article in the Economist on the Dodd-Frank Act noted the following about a provision of the act that would require that trading in some derivatives be moved from over the counter to exchanges:
The bill would further reduce the risk of contagion by moving derivatives trading onto clearing-houses, which would make it easier to determine firms' exposure to counterparties and would guarantee payment in the event of a default.
a. What does "exposure to counterparties" mean?
b. If it becomes easier to determine the exposure of a bank or another financial firm to counterparties, why might that reduce the risk of contagion?