Off Balance Sheet (OBS) Instrument

A notional principal contract that changes an economic unit's risk structure without appearing as an asset or liability on a traditional balance sheet. Swaps, forward rate agreements, and various currency contracts are common OBS instruments. The fact that the balance sheet is not affected does not mean that the instrument is not reported. The size and impact of these instruments in the aggregate is usually summarized in a footnote to financial statements. Financial accounting standard setting boards in most developed countries and regulators setting capital intermediaries are well along in the process of eliminating any disclosure advantage these instruments once had.

Glossary * O