Sources
Help build the largest human-edited directory on the web.
Submit a site - Become an editor
Wikipedia. Licensed under the GNU Free Documentation License.
Are you an expert in this subject? Join the discussion and share your knowledge at Wikipedia.org.
Financial instrument
From Wikipedia, the free encyclopedia
Financial instruments denote any form of funding medium - mostly those used for borrowing in money markets, e. g. bills of exchange, bonds, etc. (Ref: [1])
Contents |
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.
Alternatively, financial instruments can be categorized by "asset class" depending on whether they are equity based (reflecting ownership of the issuing entity) or debt based (reflecting a loan the investor has made to the issuing entity). If it is debt, it can be further categorised into short term (less than one year) or long term.
Foreign Exchange instruments and transactions are neither debt nor equity based and belong in their own category.
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.
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) |