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Underlying

• The something that the parties agree to exchange in a derivative contract.

• Is the actual or physical security, commodity, futures, index or basket underlying a derivative product. It is the benchmark for pricing and evaluation purposes.

 
 Embedded terms in definition
 Benchmark
Commodity
Contract
Derivative
Exchange
Futures
Index
Security
 
 Referenced Terms
 Actual or observed: Is the real or reported price, data, or event. It compares to the Theoretical, Implied or Hypothetical price, data, or event. The actual or observed data describe or define the Underlying process or condition.

 Actuals: The physical commodity Underlying a futures contract. Cash commodity, physical.Is the real or Underlying asset for a derivative product or commodity market.The cash commodity as opposed to the futures contract. Also known as cash or the spot.

 Actuals: The physical commodity Underlying a futures contract. Cash commodity, physical.Is the real or Underlying asset for a derivative product or commodity market.The cash commodity as opposed to the futures contract. Also known as cash or the spot.

 Aging: Is the concept which assumes that newly issued mortgages tend to prepay slower than mortgages which are older or seasoned. This aging refers to the Underlying collateral and not the securities created upon that collateral.

 American depositary receipt: Is an instrument which is issued in the United States but based on foreign securities. This security facilitates trading and investment because it is quoted in terms of the U.S. Dollar. This compares to the initial situation of the Underlying shares quoted and traded in currencies other than the U. S. dollar.Abbreviated ADR or ADRS. Certificates issued by a U.S. depositary bank, representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue. One ADR may represent a portion of a foreign share, one share or a bundle of shares of a foreign corporation. If the ADR's are sponsored, the corporation provides financial information and other assistance to the bank and may subsidize the administration of the ADRs. Unsponsored ADRs do not receive such assistance. ADRs carry the same currency, political and economic risks as the Underlying foreign share; the prices of the two, adjusted for the SDR/ordinary ratio, are kept essentially identical by arbitrage. American depositary shares (ADSs) are a similar form of certification.Claims issued by U.S. banks representing ownership of shares of a foreign company's stock held on deposit by the U.S. bank in the foreign market and issued in dollars to U.S. investors.A negotiable certificate representing a given number of shares of stock in a foreign corporation; it is bought and sold in the American securities markets, just as stock is traded. ADRs are issued by a U.S. bank, consisting of a bundle of shares of a foreign corporation that are being held in custody overseas. ADRs can be sponsored, which means the corporation provides financial and other information to the bank, or unsponsored. While ADRs have the same currency and economic risks as the Underlying foreign shares, they are much more convenient for U.S. shareholders to own since there are no problems in transferring securities from a foreign country or currency conversion.

 
 Related Terms
 Underlying asset
Underlying market price
Underlying security

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