Financial instruments are nothing more than any kind of contract between two companies, as a result of which one enterprise receives financial assets (cash), the other - a financial debt or equity commitment. It is important to note that this type of tools are divided into both recognized in the balance sheet and not recognized.
In addition, financial instruments provide additional income, in other words, they are a means of investment .
Types of financial instruments
- Primary or cash instruments. They should include contracts for purchase and sale, leasing of money, real estate, finished raw materials, products.
- Secondary or derivatives. In this case, the main object of the financial instrument is a certain object. They can be shares, bonds or any other securities, futures, any currency, stock index, precious metals, grain and other commodities. It is equally important to mention that the price of secondary financial instruments directly depends on the price of the underlying asset. The last is the exchange commodity and its value is the basis for executing a fixed-term contract.
Basic Financial Instruments
There is a large number of financial instruments. It will not be superfluous to single out the main ones:
- swap is a contract that obliges entities to exchange assets and its main purpose is to reduce not only the costs of services, but also the risks of these two entities;
- forward contract is an agreement on the purchase and sale of an item, while the contract is standardized in terms of the quantity of the goods and their quality, while the price for the goods is paid by the buyer after it is received;
- option - a contract that involves the purchase or sale of the underlying asset at a specified price and at the right time, with options may be for futures, stocks, etc .;
- futures are a kind of
forward contract and it is very common on all kinds of stock exchanges (for today the most popular is Forex), information about which is updated daily in the press.
Profitability of financial instruments
With the help of financial instruments, you can achieve the following goals :
- mobilization of investments;
- risk reduction (hedging);
- making a short-term profit.