Question

What is an Embedded Derivative?

a.

A derivative instrument with high initial investment requirements.

b.

An instrument embedded in another contract known as a host contract.

c.

A derivative traded on organized futures exchanges.

d.

A standardized derivative with fixed features.

Posted under IC 89 Management Accounting

Answer: (b).An instrument embedded in another contract known as a host contract. Explanation:An Embedded Derivative is an instrument embedded in another contract known as a host contract, which could be a debt, an equity instrument, a lease, an insurance contract, or a sale or purchase contract.

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