Discover

'Financial instruments' is a term used to denote any form of funding medium - mostly those used for borrowing in money markets, e. g. bills of exchange, bonds, etc. (Ref: [1])

Contents

Categorization

Matrix Table

Measuring Financial Instrument's Gain or Loss

See also

Categorization

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, financial instruments can be categorized 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.

Matrix Table

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.

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
Assets	Loans and receivables	Amortized costs	Net income when asset is derecognized or impaired (foreign exchange and impairment recognized in net income immediately)
??	Available for sale financial assets	Deposit account - Fair value	Other comprehensive income (impairment recognized in net income immediately)

See also

★ Off balance sheet issues