Embedded derivatives best 1 to read

Embedded derivatives are a component of a hybrid contract that also includes a non-derivative host, so some cash flows vary similar to a stand alone derivative

Compound financial instruments

Compound financial instruments – An incredible shift in accounting concepts

Compound financial instruments contain elements which are representative of both equity and liability classification.

A common example is a convertible bond, which typically (but not always, see ‘2 Convertible bonds‘ below) consists of a liability component in relation to a contractual arrangement to deliver cash or another financial asset) and an equity instrument (a call option granting the holder the right, for a specified period of time,Compound financial instruments to convert the bond into a fixed number of ordinary shares of the entity).

Other examples of possible compound financial instruments include instruments with rights to a fixed minimum dividend and additional discretionary dividends, and instruments with fixed dividend rights but … Read more