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Financial instrument

From Wikipedia, the free encyclopedia

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challenged and removed. (September 2009)

A financial instrument is a tradable asset of any kind, either cash; evidence of

an ownership interest in an entity; or a contractual right to receive, or deliver,

cash or another financial instrument.

According to IAS 32 and 39, it is defined as "any contract that gives rise to a

financial asset of one entity and a financial liability or equity instrument of

another entity".

Contents [hide]

1 Categorization

1.1 A table

2 Measuring Financial Instrument's Gain or Loss

3 See also

4 External links

[edit]Categorization

Financial instruments can be categorized 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

the value and characteristics of one or more underlying entities such as an

asset, index, or interest rate. 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

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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.

[edit]A table

Combining the above methods for categorization, the main instruments can be

organized into a table 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)

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Some instruments defy categorization into the above matrix, for example

repurchase agreements.

[edit]Measuring Financial Instrument's Gain or Loss

The table below shows how to measure a financial instrument's gain or loss:

Instrument Type

Categories Measurement Gains and losses

AssetsLoans and receivables Amortized costs Net income when asset is

derecognized or impaired (foreign exchange and impairment recognized in net

income immediately)

AssetsAvailable for sale financial assetsDeposit account - Fair value Other

comprehensive income (impairment recognized in net income immediately)