Definition: Financial instruments

Balance of Payments, IMF

Certain financial instruments give the holder the qualified right to receive an economic benefit in the form of cash, a primary financial instrument, etc. at some future date.

These instruments are referred to as derivatives or secondary instruments in that they are linked to either specific financial instruments or indicators (foreign currencies, government bonds, share price indices, interest rates, etc.) or to particular commodities that may purchased or sold at a future date. Derivates also may be linked to a future exchange, according to a contractual arrangement of one asset for another. The instrument, which is a contract, may be tradable and have a market value. When that is the case, the characteristic of the instruments as a contingent asset or liability change and give rise to treatment of the instrument as an actual financial asset or liability in the financial account. Among derivates instruments are options (on currencies, interest rates, commodities, indices, etc.), traded financial futures, warrants, and arrangements such as currency and interest rate swaps.
Source:
International Monetary Fund (IMF), "Balance of Payments Manual" (BOP), Fifth Edition, Washington D.C., 1993
Created:
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