A contract that hosts or is embedded with a derivative component as a part of a single financial instrument. The contract, per se, does not have any derivative features. Nevertheless, it hosts an embedded derivative component.

In accounting, an embedded derivative has to be separated from the host contract and accounted for as a derivative if certain conditions are met: (1) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; (2) a separate instrument with the same terms as the embedded derivative satisfies the definition of a derivative; and (3) the hybrid (combined) instrument is not measured at fair value with changes in fair value recognized in profit or loss (i.e., a derivative that is embedded in a financial asset or financial liability at fair value through profit or loss (FVTPL) is not separated).

It is also known as a non-derivative contract.