Financial instrument

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Financial instruments are tradable assets of any kind. They can be cash, evidence of an ownership interest in an entity, or a contractual right to receive or deliver cash or another financial instrument.

International Accounting Standards IAS 32 and 39 define a financial instrument as "any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity".[1]


Financial instruments can be either cash instruments or derivative instruments:

Alternatively, financial instruments may 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.

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 derivatives
Debt (short term)
≤ 1 year
Bills, e.g. T-bills
Commercial paper
Certificates of deposit
Short-term interest rate futures Forward rate agreements
Equity Stock N/A Stock options
Equity futures
Stock options
Exotic derivatives
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 gain or loss[edit]

The gain or loss on a financial instrument is as follows:

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 accountfair value Other comprehensive income (impairment recognized in net income immediately)

See also[edit]


  1. ^ International Accounting Standard (IAS) 32.11
  2. ^ Understanding Derivatives. Federal Reserve Bank of Chicago. Accessed August 2, 2015.

External links[edit]