Synthetic Agreement for Foreign Exchange (SAFE): A SAFE occurs in the over-the-counter (OTC) market and is an agreement that guarantees a specified exchange rate during an agreed period of time.įorward: A forward is a contract between two parties that involves customizable derivatives in which the exchange occurs at the end of the contract at a specific price.įuture: A future is a derivative transaction that provides the exchange of derivatives on a determined future date at a predetermined exchange rate.
The five most common examples of derivatives instruments are synthetic agreements, forwards, futures, options, and swaps. Derivative Instrumentsĭerivative instruments are financial instruments that have values determined from underlying assets, such as resources, currency, bonds, stocks, and stock indexes. When purchased or traded, a security represents ownership of a part of a publicly-traded company on the stock exchange.ĭeposits and Loans: Both deposits and loans are considered cash instruments because they represent monetary assets that have some sort of contractual agreement between parties. Securities: A security is a financial instrument that has monetary value and is traded on the stock market. Within cash instruments, there are two types securities and deposits, and loans. Types of Financial InstrumentsĬash instruments are financial instruments with values directly influenced by the condition of the markets. There are typically three types of financial instruments: cash instruments, derivative instruments, and foreign exchange instruments. One company is obligated to provide cash, while the other is obligated to provide the bond.īasic examples of financial instruments are cheques, bonds, securities. In terms of contracts, there is a contractual obligation between involved parties during a financial instrument transaction.įor example, if a company were to pay cash for a bond, another party is obligated to deliver a financial instrument for the transaction to be fully completed. Updated JanuWhat is a Financial Instrument?įinancial instruments are contracts for monetary assets that can be purchased, traded, created, modified, or settled for.
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