Bear CD
A certificate of deposit whose interest rate fluctuates in inverse correlation to the value of an underlying market index. In other words, the interest rate paid on the CD increases as the underlying market index decreases in value.
Investopedia Commentary
This type of CD is used for two main purposes: speculation or hedging. An investor may want the safety of a CD but with the market exposure of a bear CD. This CD is bearish because the investor is betting that the market will fall during the life of the CD.
This type of instrument is also used to hedge actual market positions. If an investor has a long position that is highly correlated to the underlying market index, he or she may invest his or her excess cash in a bear CD, which can offset losses in the market investment.
Related Links
Money Market Tutorial
Getting To Know The Money Market
Indexes: The Good, The Bad And The Ugly
See also: Bull CD, Certificate of Deposit - CD, Hedge, Interest Rate, Long (or Long Position), Market Index, Speculation, Underlying
Also spelled: Bear certificate of deposit