Financial instruments may be defined as easily trade-able packages of capital, each having their own unique characteristics and structure. There is a wide array of financial instruments available in the global financial market, enabling efficient flow of capital among the investors
Until the 1970s, the financial instruments were limited in scope. Companies could choose to increase their equity capital by issuing shares or units of the capital. Alternatively they could resort to bank loans or bonds. The end of the war heralded the end of relative economic stability. Growth of large-scale international trade has highlighted the need for new financial instruments. We have numerous sophisticated financial instruments available in the global financial market.
[...] The parties transfer certain amounts of two different currencies and repay those amounts throughout the agreement period, according to an agreed timetable, which reflects both interest payments and depreciation of capital Options Option is defined as right, but not the obligation, to buy (for a call option) or sell (for a put option) a specific amount of a given stock, commodity, currency, index, or debt, at a specified price (the strike price) during a specified period of time. These derivatives may be used as destabilizing tools by speculators. They are often perceived as being responsible for failures currently affecting the financial sector. Ironically these tools were originally designed to guard against financial risk. Futures contracts were developed by traders to guard against the risk of market fluctuations. Conclusion Financial instruments have a wide range due to which it is difficult to make a [...]
[...] Whereas earlier the items traded consisted primarily of material goods, they now include virtual or intangible property like rates, and financial stocks. The main characteristic of derivatives is the method of settlement for the transactions they generate. Once the contract is has been closed, the instrument must be registered with the market on which the instrument is negotiated. Registering the contract helps to end all ties between the contractors and to " restrict it within a circle composed of independent buyers and sellers of the same product.” The intervention of the clearing house has a double advantage: It provides support to a contractor in the event of failure and then provides a centralized operation, which allows the operator to resolve its position without inconveniencing the original party. [...]
[...] These are instruments of long-term funding for the state. Unlike regular bonds, their issue is by invitation and not by subscription. The participants in the auction bid on the shares at the price and quantity of their choice. They are thus sold in a current auction Collective investment products These products do differ from those outlined above the manner in which they are issued. There as four types of mutual funds. These are: The collective investment in transferable securities collects the savings of the investor, through the issuance of shares or stock and reinvests them in financial instruments. [...]
[...] However they are not financial instruments of the issuer. They which derive their value from an underlying asset and gives the holder the right to redeem it at maturity or to receive payment of a difference between the price of the underlying asset at that date and the exercise price specified in the original contract. This type of securities can either protect against a fall in prices or take advantage of this trend. They may thus be used as an instrument of speculation. [...]
[...] The mode of marketing: They are thus dematerialized instruments that may be transmitted by wire transfer from one account to another. Among financial stocks, it is possible to distinguish between those designed to meet the financing needs of the issuer and those that tend to satisfy the coverage needs or the speculative desires of the subscribers. The former gives rise to financing securities and the latter to the derivatives, such as hedging instruments and / or speculative tools. A. Treasury Financing Treasury financing is created to execute lease or loans for a joint enterprise. [...]
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