Financial instruments

Why not sponsor a child for Christmas in 2008?

Financial instruments package financial capital in readily tradeable forms - they do not exist outside the context of the financial markets. Their diversity of forms mirrors the diversity of risk that they manage.

Financial Instruments can be categorised according to whether they are securities, derivatives of other instruments (see derivative securities), or so called cash securities. If they are a derivative, they can be further categorised depending on whether they are traded as standard derivatives or traded over the counter (OTC).

Alternatively they can be categorised by 'asset class' depending on whether they are equity based (reflecting ownership of an asset) or debt based (reflecting a loan the investor has nade to the owner of an asset). If it is a debt security, it can be further categorised into short term (less than one year) or long term. Foreign Exchange instruments and transactions are neither debt nor equity based and belong in their own category.

Combining the above methods for categorisation, the main instruments can be organised into a matrix as follows:

INSTRUMENT TYPE ASSET CLASS	Cash	Standard Derivative	OTC Derivative
Debt (Long Term)	Bond Floating rate note	Bond future option Bond futures	Interest rate swap Interest rate cap & Interest rate floors Cross currency swap Exotic instruments
Debt (Short Term)	Deposit/loan Bill - (Capital Markets) CD (Certificate of deposit) CP (Commercial paper)	futures	Forward rate agreement Foreign exchange swap
Equity	Stock (Equity index)	Stock options Equity futures	Stock Options Exotic instruments
Foreign Exchange	Foreign exchange spot	Foreign exchange futures	Foreign exchange options Foreign exchange forwards

Some instruments defy categorisation into the above matrix, for example repos or repurchase agreements.