2. FINANCIAL
INSTRUMENT
MEANING :
Financial instruments are monetary contracts between parties. They can be
created, traded, modified and settled. They can be cash, evidence of an
ownership interest in an entity, or a contractual right to receive or deliver.
“A financial instrument is any contract that gives rise to a financial
asset of one entity and a financial liability or equity instrument of
another entity.”
4. CASH AND DERIVATIVE INSTRUMENT
Derivative Instruments
The value and characteristics of derivative instruments are based on
the vehicle’s underlying components, such as assets, interest rates.
These can be over-the-counter (OTC) derivatives or exchange-
traded derivatives.
Cash Instruments
The values of cash instruments are directly influenced and
determined by the markets. These can be securities that are easily
transferable.
Cash instruments may also be deposits and loans agreed upon by
borrowers and lenders.
5. ASSETS CLASSES
DEBT BASED EQUITY BASED
Debt-Based Financial
Instruments.
Types
LONG AND SHORT TERM
Short-term debt-based
financial instruments last for
one year or less. Securities
of this kind come in the form
of T-bills and commercial
paper. Cash of this kind can
be deposits and certificates
of deposit (CDs).
Equity-Based Financial
Instruments.
Securities under equity-based
financial instruments are
stocks. Exchange-traded
derivatives in this category
include stock option and
equity futures. The OTC
derivatives are stock options
and exotic derivatives.
6. A financial instrument is a real or virtual document
representing a legal agreement involving any kind of
monetary value.
Classification of financial instruments:
FINANCIAL ASSETS :
SDRs Monetary gold ,Currency Deposits ,Securities other than shares
,Borrowings ,Loans ,Shares and other equity Other accounts
receivable/payable Financial derivatives.
OTHER FINANCIAL INSTRUMENTS :
Letters of guarantee ,Letters of credit ,Financial commitments ,Pledged
financial assets.
