financial instrument
Information about financial instrument
Financial instruments is a term used to denote any form of funding medium - mostly those used for borrowing in money markets, e. g. bills of exchange, bonds, etc. (Ref: [1])
Foreign Exchange instruments and transactions are neither debt nor equity based and belong in their own category.
Some instruments defy categorisation into the above matrix, for example repurchase agreements.
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Categorization
Financial instruments can be categorised by form depending on whether they are cash instruments or derivative instruments:- Cash instruments are financial instruments whose value is determined directly by markets. They can be divided into securities, which are readily transferable, and other cash instruments such as loans and deposits, where both borrower and lender have to agree on a transfer.
- Derivative instruments are financial instruments which derive their value from some other financial instrument or variable. They can be divided into exchange-traded derivatives and over-the-counter (OTC) derivatives.
Foreign Exchange instruments and transactions are neither debt nor equity based and belong in their own category.
Matrix Table
Combining the above methods for categorisation, the main instruments can be organized into a matrix as follows:| Asset Class | Instrument Type | |||
|---|---|---|---|---|
| Securities | Other cash | Exchange-traded derivatives | OTC derivatives | |
| Debt (Long Term) >1 year | Bonds | Loans | Bond futures Options on bond futures | Interest rate swaps Interest rate caps and floors Interest rate options Exotic instruments |
| Debt (Short Term) <=1 year | Bills, e.g. T-Bills Commercial paper | Deposits Certificates of deposit | Short term interest rate futures | Forward rate agreements |
| Equity | Stock | N/A | Stock options Equity futures | Stock options Exotic instruments |
| Foreign Exchange | N/A | Spot foreign exchange | Currency futures | Foreign exchange options Outright forwards Foreign exchange swaps Currency swaps |
Some instruments defy categorisation into the above matrix, for example repurchase agreements.
Measuring Financial Instrument's Gain or Loss
The table below shows how to measure a financial instrument's gain or loss:| Instrument Type | |||
|---|---|---|---|
| Categories | Measurement | Gains and losses | |
| Assets | Loans and receivables | Amortized costs | Net income when asset is derecognized or impaired (foreign exchange and impairment recognized in net income immediately) |
| ?? | Available for sale financial assets | Deposit account - Fair value | Other comprehensive income (impairment recognized in net income immediately) |
See also
- Off balance sheet issues
External links
security is a fungible, negotiable instrument representing financial value. Securities are broadly categorized into debt securities, such as bonds and debentures, and equity securities, e.g. common stocks. The company or other entity issuing the security is called the issuer.
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A loan is a type of debt. All material things can be lent but this article focuses exclusively on monetary loans. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the and the .
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A deposit account is an account at a banking institution that allows money to be held on behalf of the account holder. Some banks charge a fee for this service, while others may pay the client interest on the funds deposited.
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Derivatives are financial instruments whose value is derived from the value of something else. They generally take the form of contracts under which the parties agree to payments between them based upon the value of an underlying asset or other data at a particular point in time.
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Ownership is the state or fact of exclusive rights and control over property, which may be an object, land/real estate, intellectual property or some other kind of property. It is embodied in an ownership right also referred to as title.
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bond is a debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon) at a later date, termed maturity.
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A loan is a type of debt. All material things can be lent but this article focuses exclusively on monetary loans. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the and the .
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In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price. The future date is called the delivery date or final settlement date.
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Options are financial instruments that convey the right, but not the obligation, to engage in a future transaction on some underlying security. For example, buying a call option provides the right to buy a specified quantity of a security at a set strike price at some time on or
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In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price. The future date is called the delivery date or final settlement date.
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An interest rate swap is a derivative in which one party exchanges a stream of interest payments for another party's stream of cash flows. Interest rate swaps can be used by hedgers to manage their fixed or floating assets and liabilities.
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Interest rate cap
An interest rate cap is a derivative in which the buyer receives money at the end of each period in which an interest rate exceeds the agreed strike price. An example of a cap would be an agreement to receive money for each month the LIBOR rate exceeds 2...... Click the link for more information.
Interest rate option is a derivative financial instrument.
The global market for exchange-traded interest rate options is notionally valued by the Bank for International Settlements at $3,075,400 million in 2005.
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The global market for exchange-traded interest rate options is notionally valued by the Bank for International Settlements at $3,075,400 million in 2005.
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In finance, an exotic option is a derivative which has features making it more complex than commonly traded products (vanilla options). These products are usually traded over-the-counter (OTC), or are embedded in structured notes.
Consider an equity index.
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Consider an equity index.
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Commercial paper is a money market security issued by large banks and corporations. It is generally not used to finance long-term investments but rather to purchase inventory or to manage working capital.
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A deposit account is an account at a banking institution that allows money to be held on behalf of the account holder. Some banks charge a fee for this service, while others may pay the client interest on the funds deposited.
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certificate of deposit or CD is a time deposit, a financial product commonly offered to consumers by banks, thrift institutions, and credit unions.
Such CDs are similar to savings accounts in that they are insured and thus virtually risk-free; they are "money in
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Such CDs are similar to savings accounts in that they are insured and thus virtually risk-free; they are "money in
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An Interest Rate Future is a futures contract with an interest-bearing instrument as the underlying asset.
Examples include Treasury-bill futures, Treasury-bond futures and Eurodollar futures.
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Examples include Treasury-bill futures, Treasury-bond futures and Eurodollar futures.
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In finance, a forward rate agreement (FRA) is a forward contract in which one party pays a fixed interest rate, and receives a floating interest rate equal to a reference rate (the underlying rate).
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In financial markets, the stock capital of a corporation or a joint-stock company is the capital raised through the issuance, sale and distribution of shares. A person or organization that holds at least a partial share of stock is called a shareholder.
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Options are financial instruments that convey the right, but not the obligation, to engage in a future transaction on some underlying security. For example, buying a call option provides the right to buy a specified quantity of a security at a set strike price at some time on or
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In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price. The future date is called the delivery date or final settlement date.
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Options are financial instruments that convey the right, but not the obligation, to engage in a future transaction on some underlying security. For example, buying a call option provides the right to buy a specified quantity of a security at a set strike price at some time on or
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In finance, an exotic option is a derivative which has features making it more complex than commonly traded products (vanilla options). These products are usually traded over-the-counter (OTC), or are embedded in structured notes.
Consider an equity index.
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Consider an equity index.
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currency is a unit of exchange, facilitating the transfer of goods and/or services. It is one form of money, where money is anything that serves as a medium of exchange, a store of value, and a standard of value. A currency is the dominant medium of exchange.
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A currency future, also FX future or foreign exchange future, is a futures contract to exchange one currency for another at a specified date in the future at a price (exchange rate) that is fixed on the last trading date.
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Options are financial instruments that convey the right, but not the obligation, to engage in a future transaction on some underlying security. For example, buying a call option provides the right to buy a specified quantity of a security at a set strike price at some time on or
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A forward contract is an agreement between two parties to buy or sell an asset (which can be of any kind) at a pre-agreed future point in time. Therefore, the trade date and delivery date are separated.
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In finance, a forex swap (or FX swap) is an over-the-counter short term interest rate derivative instrument. In emerging money markets, forex swaps are usually the first derivative instrument to be traded, ahead of forward rate agreements.
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A currency swap is a foreign exchange agreement between two parties to exchange a given amount of one currency for another and, after a specified period of time, to give back the original amounts swapped.
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