Question

Difference between embedded derivative an compound financial instrument

Answer 1

An embedded derivative is part of a financial instrument that also includes a nonderivative host contract. The embedded derivative requires that some portion of the contract's cash flows be modified in relation to changes in a variable, such as an interest rate, commodity price, credit rating, or foreign exchange rate

A compound financial instrument is a financial instrument that has the characteristics of both an equity and liability (debt). An example would be a bond that can be converted into shares.

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Answer 2

An embedded derivative is part of a financial instrument that also includes a nonderivative host contract. The embedded derivative requires that some portion of the contract's cash flows be modified in relation to changes in a variable, such as an interest rate, commodity price, credit rating, or foreign exchange rate

A compound financial instrument is a financial instrument that has the characteristics of both an equity and liability (debt). An example would be a

bond that can be converted into shares.