Business, Legal & Accounting Glossary
A Financial instrument is defined as a virtual or written document stating a legal agreement that has a monetary value. Financial instruments are broadly categorized as a debt-based financial instrument and equity-based financial instrument.
An equity-based financial instrument represents ownership of the asset. A debt-based financial instrument, on the other hand, is an index of the loan taken by the owner of an asset from the investor. Apart from these two main categories, there are a couple of other divisions as well. These include foreign exchange instruments.
The following are certain important concepts related to financial instruments:
Derivatives are financial instruments. Characteristics and financial worth of a derivative is dependent on the same qualities of an underlier. Underlier is mostly a commodity, equity, bond or currency. Futures and options are examples of a derivative.
The financial worth of a primary instrument is fixed directly by the particular market where it is being traded. Its value is not calculated in accordance with that of another financial instrument.
Financial futures are futures contracts. They are based on certain types of financial instruments like treasury bonds, currencies, certificates of deposits and indexes.
Bonds are used in the financial market for financing projects.
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This glossary post was last updated: 29th March, 2020 | 14 Views.