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Question posted: 11 24 2010 10:13:35 +0000,
2 answers, 170 views, last activity
12 19 2010 07:49:44 +0000
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2 Answers for "What is Embedded Derivative?"
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Answer modified by
Padmanabhan R, Articled / Audit assistant, Finance student
| 12 19 2010 07:54:23 +0000
When a derivative is combined with a non derivative item, that derivative is called an embedded derivative. IAS explains it as that component of a combined instrument that makes part of the cash flow associated with the whole instrument to behave in a way similar to the stand alone derivative.
For example an Indian company enters into a foreign currency denominated, say dollar sale/ purchase agreement to be settled in future with another Indian company, bonds with prepayment option etc. Here the foriegn exchange forward contract, prepayment option are embedded derivatives
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