Covenant and Derivative instrument: Difference between pages

From ACT Wiki
(Difference between pages)
Jump to navigationJump to search
imported>Doug Williamson
(Removed broken link to Will Spinney article)
 
imported>Doug Williamson
(Add links.)
 
Line 1: Line 1:
1.
A derivative instrument or contract is one whose value and other characteristics are derived from those of another asset or instrument (sometimes known as the Underlying Asset).


A formal legal agreement to take, or not to take, certain actions.
Derivative instruments are widely used by non-financial corporates for hedging purposes.




2.
<span style="color:#4B0082">'''Example'''</span>


In loan documentation, a promise given by the borrower to take, or not to take, specified actions relevant to the borrower's creditworthiness.<ref>http://www.treasurers.org/node/8842</ref>  For example, a ''financial covenant'' to maintain a minimum ratio of net worth to debt.
A share option is a type of derivative contract, allowing the holder to buy shares at a certain predetermined strike price.  


The value of the share option derives from the current price of the related underlying share relative to the option strike price.


3.


In relation to pension funds, the credit strength of the sponsoring employer and its commitment to the pension fund.
== See also ==
* [[CertFMM]]
* [[Commodity risk]]
* [[CP]]
* [[Credit support annex]]
* [[Embedded derivative]]
* [[ETD]]
* [[FC]]
* [[Fixing instrument]]
* [[Hedge fund]]
* [[Hedging]]
* [[IR]]
* [[ISDA Master Agreement]]
* [[Maturity]]
* [[Notional principal]]
* [[Option]]
* [[Outright]]
* [[Strike price]]
* [[Tracker fund]]
* [[Transfer]]
* [[Underlying]]
* [[Underlying asset]]
* [[Underlying price]]
* [[XVA]]




== See also ==
===Other links===
* [[Accounting exposure]]
*[http://www.treasurers.org/node/8599  Masterclass: Derivatives, The Treasurer, December 2012]  
* [[Asset cover]]
* [[Breach of covenant]]
* [[Compliance]]
* [[Contingent covenant]]
* [[Covenant-lite]]
* [[Credit risk]]
* [[Event of default]]
* [[Financial covenant]]
* [[Generally accepted accounting principles]]
* [[Incurrence covenant]]
* [[Interest cover]]
* [[Loan agreement]]
* [[Maintenance covenant]]
* [[MCT]]
* [[Net worth]]
* [[Non-financial covenant]]
* [[Restrictive covenant]]
* [[Waiver]]
 


==References==
*[http://www.treasurers.org/node/7849 Use and Misuse of Derivatives, Will Spinney, ACT 2012]
<references/> Treasury Essentials: Covenants, The Treasurer, March 2013


[[Category:Long_term_funding]]
[[Category:Manage_risks]]
[[Category:Risk_frameworks]]
[[Category:Risk_frameworks]]
[[Category:Treasury_operations_infrastructure]]

Revision as of 14:59, 14 August 2016

A derivative instrument or contract is one whose value and other characteristics are derived from those of another asset or instrument (sometimes known as the Underlying Asset).

Derivative instruments are widely used by non-financial corporates for hedging purposes.


Example

A share option is a type of derivative contract, allowing the holder to buy shares at a certain predetermined strike price.

The value of the share option derives from the current price of the related underlying share relative to the option strike price.


See also


Other links

Retrieved from ‘https://wiki.treasurers.org/w/index.php?title=Covenant&oldid=14738’