An "embedded derivative" under Ind AS 109 is:
AA component of a hybrid contract that includes a non-derivative host, such that some cash flows of the combined instrument vary like a stand-alone derivative
BA derivative that is separately tradable and has a different counterparty from the host contract
CA derivative whose maturity equals the maturity of its host contract
DA derivative whose terms are governed by statutory law rather than the contract
Answer & Solution
Correct answer: A. A component of a hybrid contract that includes a non-derivative host, such that some cash flows of the combined instrument vary like a stand-alone derivative
An embedded derivative is a component within a hybrid contract that has a non-derivative host — the hybrid's cash flows are modified by reference to an underlying as if a stand-alone derivative were attached. If a derivative is contractually transferable separately from the host or has a different counterparty, it is NOT an embedded derivative but a separate financial instrument.
Related questions
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