Write notes on Derived Instrument.

These instruments are not direct debt instruments. Instead they derive value from various debt instruments. The following are the derived instruments: Mortgage Bonds: Mortgage backed bonds is a collateralized term-debt offering. Every issue of such bonds is backed by pledged collateral. These bonds are like the bonds floated in the capital market, semi-annual or quarterly payments of interest and final bullet payment of principal. Pass through certificates: In this case, when mortgages are pooled together and undivided interest in the pool are sold. It certificates promises that the cash flow from the underlying mortgages would be passed through to the holders of the securities in the form of monthly payments of interest and principal. Participation certificate: These are strictly inter-bank instruments confined to the scheduled commercial banks certificates and its tenure does not exceeding 90 days. Interests rate on such certificate are determined by the two contracting banks.