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Derivatives are often found as components of other contractual arrangements. Certain financial instruments and other contracts, including loans and other debt instruments, equity securities, insurance policies, and leases, often contain features that are derivatives. Embedded derivatives can affect the cash flows or value of other exchanges required by the contract in a manner similar to that of a derivative.
Figure DH 1-5 shows examples of common embedded derivatives and host contracts.
Figure DH 1-5
Types of embedded features added to host contracts
See DH 4 for information on the identification of embedded derivatives as well as whether the derivative should be separated from its host contract.
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