A cash flow instrument (cf) lets you enter into a series of predefined cash flows on predefined dates. Each underlying cash flow in the series is paid by one side and received by the other side, but which side pays the cash flow and which side receives the cash flow can change from cash flow to cash flow.
If you are set to receive the cash flow instrument, you will receive any underlying cash flow with a positive value and pay any underlying cash flow with a negative value. Similarly, if you are set to pay the cash flow instrument, you will pay any underlying cash flow with a positive value and receive any underlying cash flow with a negative value.
The market price (or premium) of the cash flow instrument is the sum of the discounted value of each underlying future cash flow (i.e., of all the cash flows that fall after the valuation date).
On each payment date the payout of the cash flow is predefined, either as an exact amount or as a percentage of the notional.
Advantages of a Cash Flow Instrument
It is a useful tool for structuring purposes. For example, it can be used as a building block in a structured product.