Financial Instrument Information
A financial instrument is either cash; evidence of an ownership interest in an entity; or a contractual right to receive, or deliver, cash or another financial instrument.
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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 assets. 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 categorization, 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 categorization 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) |
| Assets | Available for sale financial assets | Deposit account - Fair value | Other comprehensive income (impairment recognized in net income immediately) |
See also
- Off-balance-sheet issues
External links
- IFRS List - The online community about IFRS/IAS and Auditing
- Analysis of financial foreign exchange software
Categories: Financial markets
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