Financial instruments are cash, evidence of an ownership interest in an entity, or a contractual right to receive, or deliver, cash or another financial instrument
Categorization of Financial instruments
- Cash instruments are financial instruments whose value is determined directly by markets.
Eg:- Loans,deposits,securities etc...
- Derivative instruments are financial instruments which derive their value from the value and characteristics of one or more underlying assets.
Eg:- options, futures, forwards etc.....
Securities are readily transferable whereas loans and advances require mutual consensus between two parties
Over the counter derivatives (OTC) are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary.
Eg: Swaps and forward rate agreements
Exchange-traded derivatives (ETD) are those derivatives products that are traded via specialized derivatives exchanges or other exchanges. A derivatives exchange acts as an intermediary to all related transactions, and takes Initial margin from both sides of the trade to act as a guarantee
Eg:-Options, Futures etc.....
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