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Under Ind AS 109, a DERIVATIVE is a financial instrument with all of which three characteristics?
AListed on a recognised exchange; standardised contract terms; settled in cash
BValue changes in response to a specified underlying; no or little initial net investment; settled at a future date
CCarries a fixed coupon; convertible into equity; redeemable at face value
DIssued by a bank; backed by collateral; matures within one year
Answer & Solution
Correct answer: B. Value changes in response to a specified underlying; no or little initial net investment; settled at a future date
Appendix A of Ind AS 109 defines a derivative by three CONJUNCTIVE features: (a) value changes due to a specified underlying (interest rate, FX, commodity price, equity price, credit rating, index, or other variable not specific to the contract counterparty), (b) no or little initial net investment relative to other contracts with similar response to market factors, and (c) future settlement. Exchange listing, issuer type and conversion features are not the test.
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