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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 Says

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 Definitions

  •

    Banker's Acceptance - BA

    A short-term debt instrument issued by a firm that is guaranteed by a commercial bank. Banker's acceptances are issued by firms as part of a commercial transaction. These instruments are ...
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  • Hedge

    Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures ...
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  • Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between two rates, in the shape of the yield curve or in any other ...
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    • Derivative

      A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by ...
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    • Forward Rate Agreement - FRA

      An over-the-counter contract between parties that determines the rate of interest, or the currency exchange rate, to be paid or received on an obligation beginning at a future start ...
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    • Nominal Value

      The stated value of an issued security that remains fixed, as opposed to its market value, which fluctuates.
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    • Maturity

      1. The length of time until the principal amount of a bond must be repaid. 2. The end of the life of a security.
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