DERIVATIVE Definition

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DERIVATIVE is a transaction or contract whose value depends on or, as the name implies, derives from the value of underlying assets such as stock, bonds, mortgages, market indices, or foreign currencies. One party with exposure to unwanted risk can pass some or all of the risk to a second party. The first party can assume a different risk from a second party, pay the second party to assume the risk, or, as is often the case, create a combination. Derivatives are normally used to control exposure or risk. See DERIVATIVE CONTRACT.

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CLOSING ACCOUNT is the determining the balance of an account and posting an entry to offset such balance.

VOSTRO ACCOUNT is a local currency account maintained with a bank by another bank. The term is normally applied to the counterpartys account from which funds may be paid into or withdrawn, as a result of a transaction.

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