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Financial instruments package financial capital in readily tradeable forms - they do not exist outside the context of the financial markets. Their diversity of forms mirrors the diversity of risk that they manage.

Financial Instruments can be categorised according to whether they are securities, derivatives of other instruments (see derivative securities), or so called cash securities. If they are a derivative, they can be further categorised depending on whether they are traded as standard derivatives or traded over the counter ( OTC).

Alternatively they can be categorised by 'asset class' depending on whether they are equity based (reflecting ownership of an asset) or debt based (reflecting a loan the investor has nade to the owner of an asset). If it is a debt security, 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.

Combining the above methods for categorisation, the main instruments can be organised into a matrix as follows:

INSTRUMENT TYPE ASSET CLASS	Cash	Standard Derivative	OTC Derivative
Debt (Long Term)	Bond Floating rate note	Bond future option Bond future	Interest rate swap Interest rate cap & Interest rate floors Cross currency swapA Swap is a financial instrument derivative security A swap is essentially an agreement in which both parties agree to exchange a strip of future interest payments; one party paying fixed interest payments, and one party paying floating interest payments, Interest rate optionAn interest rate option is a derivative security where the underlying asset is the right to pay or receive a (usually notional) amount of money at a given interest rate. Interest rate derivatives are the largest derivatives market in the world. In January Exotic instruments
Debt (Short Term)	Deposit/ loanA loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower . The borrower initially receives an amount of money from the lender, which they pay back, usually bu Bill CD ( Certificate of depositA certificate of deposit or CD is, in the United States, a familiar financial product, commonly offered to consumers by banks, thrift institutions, and credit unions. Such CDs are similar to savings accounts in being insured—by the FDIC for banks or by th) CP ( Commercial paper)	Futures	Forward rate agreement Foreign exchange swap
Equity	Stock ( Equity index )	Stock options Equity futures	Stock Options Exotic instruments
Foreign Exchange	Foreign exchange spot	Foreign exchange futures	Foreign exchange options Foreign exchange forwards Currency Future

Some instruments defy categorisation into the above matrix, for example repurchase agreements.

Finance Derivatives

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Topics: Financial Instruments Foreign Exchange Rate Equity Debt...

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