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Glossary Of Terms: Financial Instruments

Financial instruments denote any form of funding medium - mostly those used for borrowing in money markets, e. g. bills of exchange, bonds, etc.

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.

Resource: Wikipedia