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Definition from ASC 815-15-20
Hybrid Instrument: A contract that embodies both an embedded derivative and a host contract.
Type of contract or instrument |
Potential embedded derivatives |
Debt instrument
|
Put or call option
Interest rate indexation or leverage
Credit indexation
Conversion option
Foreign exchange indexation
|
Preferred stock
|
Put or call option
Conversion option
|
Insurance
|
Equity indexation
Variable annuity minimum guarantees
|
Lease
|
Interest rate indexation or leverage
Credit indexation
|
Purchase contract
|
Interest rate indexation or leverage
Credit indexation
Commodity price risk
|
Definition from ASC Master Glossary
Freestanding Financial Instrument: A financial instrument that meets either of the following conditions:
A put or call option that is added or attached to a debt instrument by a third party contemporaneously with or after the issuance of a debt instrument shall be separately accounted for as a derivative instrument under this Subtopic by the investor (that is, by the creditor). An option that is added or attached to an existing debt instrument by another party results in the investor having different counterparties for the option and the debt instrument and, thus, the option shall not be considered an embedded derivative. Paragraph 815-15-25-2 states that notion of an embedded derivative in a hybrid instrument refers to provisions incorporated into a single contract, and not to provisions in separate contracts between different counterparties.
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