What is a financial instrument?

Financial instruments are also called "credit instruments" or "trading instruments". When a department with insufficient funds borrows funds from a department with sufficient funds or the issuer raises funds from investors, a written document made in a certain format clarifies the obligations and rights of the debtor and is a legally binding contract.

Financial instruments are the objects of financial market transactions, which are produced and developed with the development of credit relations. Modern complex financial relations, it is impossible to do things by verbal agreement. False statements can easily lead to disputes, which can not transfer and circulate creditor's rights or ownership in the market. In order to meet various forms of credit demand, financial instruments such as commercial bills, bank certificates of deposit, stocks and bonds have emerged.

Any financial instrument has a dual nature: it is a debt to the instrument issuer (borrower); For investors (lenders), it is a financial asset. Each financial instrument has its own special contents to meet the different needs of transactions, but some contents are the same, such as: face value, issuer's (drawer's) signature, term, interest rate (simple interest or compound interest) and so on.

Extended data:

Financial instruments can be divided into two categories according to their liquidity:

1, legal tender symbol

This refers to the modern credit currency. There are two forms of modern credit currency: paper money and bank demand deposits, which can be regarded as bank liabilities. They have obtained the qualifications generally accepted by the public, and there will be no trouble in transferring them. This complete liquidity can be regarded as an extreme of financial instruments.

2. Securities

These financial instruments also have the characteristics of circulation, transfer and acceptance, but there are certain conditions. Including certificates of deposit, commercial bills, stocks, bonds, etc. Their acceptance depends on the nature of this financial instrument.

3. Long-term debt (more than one year)

(1) securities) = bonds.

(2) Other cash = loans.

⑶ Financial derivatives traded on exchanges = bond futures.

4. Short-term debt (less than one year)

(1) securities) = bills (commercial bills)

(2) Other cash = deposits and time deposits (certificates of deposit)

⑶ Financial derivatives traded on exchanges = short-term interest rate futures.

5. Foreign exchange transactions

(1) Securities) = None

(2) Other cash categories = None

(3) Financial derivatives traded on exchanges = spot foreign exchange