This document discusses different types of banking instruments and financial instruments. It defines banking instruments as negotiable contracts that facilitate capital flow between entities. It describes financial instruments as contracts between two parties that can be traded and settled, giving the holder a financial asset and the issuer a liability or equity.
There are two main categories of financial instruments: non-complex instruments like equity securities, debt securities, and certain mutual funds; and complex instruments like derivatives, whose value depends on multiple simultaneous factors requiring specialized knowledge. Common banking instruments include debt securities, investment funds, and complex derivatives. The document outlines some benefits of different financial instruments depending on their nature and risk-return profiles.
2. Banking instruments is
the negotiable
contracts that facilitate
the flow of capital
between entities.
Discover the different
types of financial
instruments and why
these contracts play a
key role in the markets.
Know About Banking
Instruments And Their
Types
3. This is a financial instrument
which is a contract between
two parties that can be traded
and settled. The contract, which
is a form of investment support,
gives rise to a financial asset for
the holder and a liability or
equity instrument for the issuer
with the means of instruments
like a standby letter of credit
(SBLC). This means that one of
the entities (the buyer) will
have the right to receive certain
economic resources while the
other (the seller) will have an
obligation to settle that right.
4. The type of asset refers to the form that the financial instrument can take, such as a commodity, a share, a bond, a
derivative, or a standby letter of credit (SBLC) while the financial obligation can be, for example, in the form of a payment
in cash, from the delivery of other securities, or the exchange of securities or financial obligations with another entity
5. Main categories of
banking instruments:
Financial instruments
can be divided into two
basic categories, non-
complex and complex.
6. Non-complex financial instruments can be handled without requiring highly specialized knowledge of the
markets. In some circumstances, all you need is an initial investment and appointing someone to operate
for you. Non-complex financial instruments include equity securities, debt securities, and certain types of
mutual funds.
7. Debt securities include government
(public debt) and corporate (private debt)
bonds. Debt securities can also refer to
preferred stock and collateralized
securities, such as collateralized debt
obligations (CDOs).
Investment funds include hedge funds and
mutual funds. These instruments allow
various investors to pool their money
under the care of a specialist or a
company that manages it: the fund
manager. Typically, the manager will make
decisions on behalf of investors.
8. Banking instruments
classified as complex are
those whose value depends
not only on supply and
demand but also on a series
of factors that act
simultaneously; Therefore,
they require in-depth
knowledge in order to be
managed successfully. The
most widely traded complex
financial instruments are
derivatives.
Complex financial
instruments:
9. The benefits of banking
instruments: Financial products offer different
advantages depending on their nature.
An investor will have the option of
choosing between a financial
instrument with a moderate but
consistent return and a financial
instrument with a high return, but with
greater risk.
Financial instruments that invest in
listed securities or through speculative
tools can provide benefits when well
managed. For example, investment
funds, which are advised by various
financial experts, are investments with
high returns and lower risks due to the
wide variety of investments.