- This topic has 2 replies, 2 voices, and was last updated 6 years ago by nari.
- You must be logged in to reply to this topic.
Instant Poll - Read and post comments:
Specially for OpenTuition students: 20% off BPP Books for ACCA & CIMA exams – Get your BPP Discount Code >>
Regarding financial instruments, can you please explain to me what is a hybrid instrument and give an example?
Also what is a derivative and non-derivative, along with examples.
A hybrid (compound) instrument has a mixture of debt and equity, so a convertible debenture is the main example.
The definition of a derivative is within the notes, so you can look for it there. Examples are also mentioned, with futures and options are the main examples.
A non-derivative is anything that is not a derivative, so a simple debt obligation is a non-derivative financial liability/instrument.
Thanks for responding, the reason i asked is because of what i read which stated that there is a difference between the two. This is an extract:
Compound financial instruments vs. Hybrid financial instruments
To finish this article, let me explain what the difference between “compound” and “hybrid” financial instruments is because I noted that many people interchange these 2 terms—yet they mean totally different things:
Compound financial instrument: that’s the NON-DERIVATIVE financial instrument containing both equity and liability components.
Hybrid financial instrument or hybrid contract is the one containing embedded derivative.
While accounting for compound financial instrument is arranged by IAS 32 Financial Instruments: Presentation, rules for identification and accounting for embedded derivatives are arranged by IFRS 9 Financial Instruments.