Financial Instruments

Financial instrument is a monetary contract between parties that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

In another words it is an agreement between two parties that the parties have little, if any, discretion to avoid, usually because the agreement is enforceable by law. An asset or liability that is not contractual is not a financial instrument even though it may result in the receipt or delivery of cash. The term “financial instrument” covers equity instruments, financial assets, and financial liabilities. And, Equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

They can be created, traded, modified and settled. Generally, they can be cash (currency), evidence of an ownership interest in an entity (share), or a contractual right to receive or deliver cash (bond).

Financial instruments can be broken down into three main categories. Equity-based instruments are company stock, which represents equity ownership in a company. Debt-based instruments, such as bonds and government treasuries, represent a financial liability to their issuer. The third category of financial instruments consists of currency pairs that trade on the foreign exchange markets.

Financial instrument is a monetary contract between parties that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

In another words it is an agreement between two parties that the parties have little, if any, discretion to avoid, usually because the agreement is enforceable by law. An asset or liability that is not contractual is not a financial instrument even though it may result in the receipt or delivery of cash. The term “financial instrument” covers equity instruments, financial assets, and financial liabilities. And, Equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

They can be created, traded, modified and settled. Generally, they can be cash (currency), evidence of an ownership interest in an entity (share), or a contractual right to receive or deliver cash (bond).

Financial instruments can be broken down into three main categories. Equity-based instruments are company stock, which represents equity ownership in a company. Debt-based instruments, such as bonds and government treasuries, represent a financial liability to their issuer. The third category of financial instruments consists of currency pairs that trade on the foreign exchange markets.