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Financial Instruments

According to IAS 32, a financial instrument is "a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity."


A financial asset is any asset that is:

  • cash
  • an equity instrument of another entity
  • a contractual right:
    • to receive cash or another financial asset from another entity; or
    • to exchange financial assets or financial liabilities with another entity under conditions that are potentially favorable to the entity; or
    • a contract that will or may be settled in the entity's own equity instruments and is:
      • a non-derivative for which the entity is or may be obliged to receive a variable number of the entity's own equity instruments
      • a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity's own equity instruments. For this purpose the entity's own equity instruments do not include instruments that are themselves contracts for the future receipt or delivery of the entity's own equity instruments
      • puttable instruments classified as equity or certain liabilities arising on liquidation classified by IAS 32 as equity instruments

A financial liability is any liability that is:

  • a contractual obligation:
    • to deliver cash or another financial asset to another entity; or
    • to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the entity; or
    • a contract that will or may be settled in the entity's own equity instruments and is:
      • a non-derivative for which the entity is or may be obliged to deliver a variable number of the entity's own equity instruments or
      • a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity's own equity instruments. For this purpose the entity's own equity instruments do not include: instruments that are themselves contracts for the future receipt or delivery of the entity's own equity instruments; puttable instruments classified as equity or certain liabilities arising on liquidation classified by IAS 32 as equity instruments

Financial instruments can also be categorized in two groups:

  • Cash instrument
    Cash instruments are financial instruments whose value is determined directly by markets.
  • Derivative instruments
    Derivative instruments are financial instruments which derive their value from the value and characteristics of one or more underlying entities such as an asset, index, or interest rate. They can be divided into exchange-traded derivatives and over-the-counter (OTC) derivatives.

Alternatively, financial instruments can be categorized by "asset class" depending on whether they are equity based (reflecting ownership of the issuing entity) or debt based (reflecting a loan the investor has made to the issuing entity). If it is debt, it can be further categorized into short term (less than one year) or long term.

The financial instruments/assets we will analyze are:

  • Currencies
  • Commodities
  • Gold
  • Silver
  • Platinum
  • Palladium
  • Indices
  • Futures
  • Options
  • Bonds
  • Stocks
  • Investment Funds
  • Exchanged Traded Funds (ETFs)
  • Exchanged Traded Commodities (ETCs)