Financial instrument
From Wikipedia, the free encyclopedia
Financial instruments is either a real or virtual document representing a legal agreement involving some sort of monetary value.
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 they can be categorised 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.
