BAX Contract

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DEFINITION of 'BAX Contract'

A BAX contract is a short-term investment instrument that uses a Canadian banker's acceptance (BA) as its underlying security. The specific BA underlying the contract has a nominal value of C$1 million and a maturity of three months. The contracts are traded on the Montreal Derivatives Exchange.

Also known as a "banker's acceptance contract".

INVESTOPEDIA EXPLAINS 'BAX Contract'

These contracts are great way for a company to hedge against a rise in interest rates. BAX contracts are becoming increasingly popular because they are a less expensive hedge than their over-the-counter competition, forward rate agreements. BAX contracts are also very liquid, flexible, and do not tie up credit lines.

RELATED TERMS
  1. Derivative

    A security whose price is dependent upon or derived from one ...
  2. Interest Rate Risk

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  3. Banker's Acceptance - BA

    A short-term debt instrument issued by a firm that is guaranteed ...
  4. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  5. Forward Rate Agreement - FRA

    An over-the-counter contract between parties that determines ...
  6. Maturity

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