Financial instruments refer to any legal agreement, contract, or security that has a monetary value or can be traded in financial markets. They are commonly used by investors, businesses, and governments to manage financial risk, raise capital, and invest funds. Examples of financial instruments include stocks, bonds, futures contracts, options, swaps, and other derivatives.
Financial instruments can be classified into two main categories: debt instruments and equity instruments. Debt instruments represent a loan made by an investor to an entity and include bonds, debentures, notes, and other debt securities. Equity instruments, on the other hand, represent ownership in a company and include stocks, shares, and other equity securities.
Financial instruments also vary in terms of their complexity, risk, and liquidity. For instance, some financial instruments may involve complex structures and sophisticated pricing models, while others may be relatively simple and straightforward. Additionally, some financial instruments may be highly liquid, meaning they can be easily bought or sold in financial markets, while others may be illiquid and difficult to trade.
