{"id":69,"date":"2024-05-20T10:03:44","date_gmt":"2024-05-20T10:03:44","guid":{"rendered":"https:\/\/lemonn.co.in\/blog\/?post_type=glossary&p=69"},"modified":"2024-05-21T06:36:41","modified_gmt":"2024-05-21T06:36:41","slug":"financial-instruments","status":"publish","type":"glossary","link":"https:\/\/lemonn.co.in\/blog\/glossary\/financial-instruments\/","title":{"rendered":"Financial Instruments"},"content":{"rendered":"

Financial instruments<\/a> are assets<\/a> that can be traded on the financial markets. They take several forms and serve a variety of functions, including raising funds, hedging<\/a> risks, and investing. The following are the primary categories of financial instruments:<\/p>\n\n\n\n

1. Equity<\/a> Instruments: <\/h2>\n\n\n\n

Stocks<\/a> represent ownership in a corporation. Common equities grant voting rights and possible dividend<\/a>s, whereas preferred stocks provide set income but no voting rights.<\/p>\n\n\n\n

Warrants: Grant the right to purchase a company’s stock at a specified price before it expires.<\/p>\n\n\n\n

2. Debt Instruments <\/h2>\n\n\n\n

– Bonds<\/a>: Long-term debt securities issued by firms and governments. Investors receive periodic interest payments and the principal at maturity.<\/p>\n\n\n\n

– Debentures are unse<\/a>cured bonds that rely on the issuer’s creditworthiness rather than collateral.<\/p>\n\n\n\n

– Commercial Paper: Short-term, unsecured promissory notes issued by firms to cover short-term liabilities<\/a>.<\/p>\n\n\n\n

3. Derivative<\/a> Instruments <\/h2>\n\n\n\n

– Futures: Contracts requiring buyers to purchase and sellers to sell a specific asset at a predetermined future date and price.<\/p>\n\n\n\n

– Options: Offer the right, but not the responsibility, to buy (call option) or sell (put option) an asset at a certain price before it expires.<\/p>\n\n\n\n

– Swaps<\/a>: Parties agree to exchange cash flow<\/a>s or other financial instruments, which are frequently used to control interest rate or currency risks.<\/p>\n\n\n\n

4. Hybrid Instruments <\/h2>\n\n\n\n

– Convertible Bonds<\/a>: Debt securities that can be converted into a specific number of the <\/p>\n\n\n\n

issuer’s shares<\/a>.<\/p>\n\n\n\n

– Preference Shares<\/a>: Equity shares<\/a> that pay fixed dividends and have priority over common shares in asset liquidation, but lack voting rights.<\/p>\n\n\n\n

5. Cash Instruments <\/h2>\n\n\n\n

– Cash and Cash Equivalents: Currency, bank deposits, and liquid assets can be easily converted into cash.<\/p>\n\n\n\n

– Certificates of Deposit (CDs): Bank time deposits that provide higher interest rates than savings accounts in exchange for locking money away for a set period of time.<\/p>\n\n\n\n

6. Foreign Exchange Instruments <\/h2>\n\n\n\n

– Currency Pairs: Trading<\/a> one currency against another in the foreign exchange market, for example EUR\/USD or USD\/JPY.<\/p>\n\n\n\n

– Forex Swaps: Agreements to exchange currency amounts and reverse the transaction at a later date.<\/p>\n","protected":false},"excerpt":{"rendered":"

Financial instruments are assets that can be traded on the financial markets. They take several forms and serve a variety of functions, including raising funds, hedging risks, and investing. The following are the primary categories of financial instruments: 1. Equity Instruments:  Stocks represent ownership in a corporation. Common equities grant voting rights and possible dividends, […]<\/p>\n","protected":false},"author":3,"featured_media":0,"menu_order":0,"template":"","meta":{"footnotes":""},"class_list":["post-69","glossary","type-glossary","status-publish","hentry"],"blocksy_meta":[],"_links":{"self":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/69","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary"}],"about":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/types\/glossary"}],"author":[{"embeddable":true,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/users\/3"}],"version-history":[{"count":0,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/69\/revisions"}],"wp:attachment":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/media?parent=69"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}