Scribd
Upload
218 views1 page

Types of Financial Instruments

The document discusses and differentiates three types of instruments: cash instruments, derivative instruments, and foreign exchange instruments. Cash instruments include securities and deposits/loans, and their value is directly influenced by market conditions. Derivative instruments derive their value from underlying assets and include synthetic agreements, forwards, futures, options, and swaps. Foreign exchange instruments consist of currency agreements and derivatives whose payoff depends on foreign exchange rates.

Uploaded by

Alvin Jan Cayog Alonzo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
218 views1 page

Types of Financial Instruments

The document discusses and differentiates three types of instruments: cash instruments, derivative instruments, and foreign exchange instruments. Cash instruments include securities and deposits/loans, and their value is directly influenced by market conditions. Derivative instruments derive their value from underlying assets and include synthetic agreements, forwards, futures, options, and swaps. Foreign exchange instruments consist of currency agreements and derivatives whose payoff depends on foreign exchange rates.

Uploaded by

Alvin Jan Cayog Alonzo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Discuss , describe, and differentiate the three types of instruments.

Give examples to
elucidate your discussion.

Cash instruments are financial instruments with values directly influenced by the
condition of the markets. Within cash instruments, there are two types; securities and
deposits, and loans. Cash instruments are financial instruments whose value is
ascertained directly by markets. Cash instruments can be classified into two types as
securities and other cash instruments such as loans and deposits. Securities are readily
transferable, whereas loans and deposits can be transferred only when both borrower and
lender agrees for the transfer. Cash instruments often offer complete capital security, but
subject to credit risk. As a result, the capital value of cash instruments will not fluctuate if
interest rates fluctuate. Since cash instruments are highly liquid, it can be used by
institutions with very long-term liabilities, to meet their immediate cash flow needs.

Derivative instruments are financial instruments that have values determined


from underlying assets, such as resources, currency, bonds, stocks, and stock indexes.
The five most common examples of derivatives instruments are synthetic agreements,
forwards, futures, options, and swaps. 

A financial instrument is a document that has monetary value or which establishes an


obligation to pay. Examples of financial instruments are cash, foreign currencies ,
accounts receivable , loans , bonds , equity securities , and accounts payable . A
derivative is a financial instrument that has the following characteristics:

Foreign exchange instruments- are financial instruments that are represented on the
foreign market and primarily consist of currency agreements and derivatives. financial
derivative whose payoff depends on the foreign exchange rates of two (or more)
currencies. These instruments are commonly used for currency speculation and arbitrage
or for hedging foreign exchange risk.

You might also like