Contents

Financial instrument

Monetary contract between parties

This article needs additional citations for verification. Please help improve this articlebyadding citations to reliable sources. Unsourced material may be challenged and removed. Find sources: "Financial instrument" – news · newspapers · books · scholar · JSTOR (July 2024) (Learn how and when to remove this message)

Part of a serieson
Finance
Markets Assets Asset (economics) Bond Asset growth Capital asset Commodity Derivatives Domains Equity Foreign exchange Money Over-the-counter Private equity Real estate Spot Stock Participants Angel investor Bull (stock market speculator) Financial planner Investor institutional Retail Speculator Locations Financial centres Offshore financial centres Conduit and sink OFCs
Instruments Bond Cash Collateralised debt obligation Credit default swap Time deposit (certificate of deposit) Credit line Deposit Derivative Futures contract Indemnity Insurance Letter of credit Loan Mortgage Option (call exotic put) Performance bonds Repurchase agreement Stock Security Syndicated loan Synthetic CDO
Corporate General Accounting Audit Capital budgeting Capital structure Corporate finance Credit rating agency Enterprise risk management Enterprise value Risk management Financial statements Transactions Leveraged buyout Mergers and acquisitions Structured finance Venture capital Taxation Base erosion and profit shifting (BEPS) Corporate tax haven Tax inversion Tax haven Transfer pricing
Personal Credit / Debt Employment contract Financial planning Retirement Student loan
Public Government spending Final consumption expenditure Operations Redistribution Transfer payment Government revenue Taxation Deficit spending Budget (balance) Debt Non-tax revenue Warrant of payment
Banking Central bank Deposit account Fractional-reserve Full-reserve Investment banking Loan Money supply Lists of banks Bank regulation Banking license Basel Accords Bank for International Settlements Financial Stability Board Deposit insurance Separation of investment and retail banking
Regulation · Financial law International Financial Reporting Standards ISO 31000 Professional certification Fund governance
Economic history Private equity and venture capital Recession Stock market bubble Stock market crash Accounting scandals
Outline Business and Economics portal Money portal
v t e

Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. They can be cash (currency), evidence of an ownership interest in an entity or a contractual right to receive or deliver in the form of currency (forex); debt (bonds, loans); equity (shares); or derivatives (options, futures, forwards).

International Accounting Standards IAS 32 and 39 define a financial instrument as "any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity".^[1]

Financial instruments may be categorized by "asset class" depending on whether they are foreign exchange-based (reflecting foreign exchange instruments and transactions), equity-based (reflecting ownership of the issuing entity) or debt-based (reflecting a loan the investor has made to the issuing entity). If the instrument is debt it can be further categorized into short-term (less than one year) or long-term.

Types[edit]

Financial instruments can be either cash instruments or derivative instruments:

• Cash instruments – instruments whose value is determined directly by the markets. They can be securities, which are readily transferable, and instruments such as loans and deposits, where both borrower and lender have to agree on a transfer.
• Derivative instruments – instruments which derive their value from the value and characteristics of one or more underlying entities such as an asset, index, or interest rate. They can be exchange-traded derivatives and over-the-counter (OTC) derivatives.^[2] Some of the more common derivatives include forwards, futures, options, swaps, and variations of these such as synthetic collateralized debt obligations and credit default swaps.

Some instruments defy categorization into the above matrix, for example repurchase agreements.

Measuring gain or loss[edit]

The gain or loss on a financial instrument is as follows:

See also[edit]

• Off-balance-sheet issues
• IFRS 9 – Accounting standard titled "Financial Instruments"
• IFRS 7 – Accounting standard titled "Financial Instruments: Disclosures"

References[edit]

External links[edit]

• IFRS List – The online community about IFRS/IAS and Auditing
• Understanding Derivatives: Markets and Infrastructure Federal Reserve Bank of Chicago, Financial Markets Group
• Why the Stock Market is better than having your money in the bank…