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Financial instrument
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<h2 id="types">Types</h2> <p>Financial instruments can be either cash instruments or derivative instruments: </p> <ul><li>Cash instruments – instruments whose value is determined directly by the <a href="/facts/Market_(economics)/6RfCU3fH">markets</a>. They can be <a href="/facts/Security_(finance)/lJRYHKgD">securities</a>, which are readily transferable, and instruments such as <a href="/facts/Loans/bPaAc9HT">loans</a> and <a href="/facts/Deposit_(finance)/fVK5rTeP">deposits</a>, where both borrower and lender have to agree on a transfer.</li> <li><a href="/facts/Derivative_(finance)/jx4CbakW">Derivative instruments</a> – instruments which derive their value from the value and characteristics of one or more underlying entities such as an <a href="/facts/Asset/o7TARXhB">asset</a>, <a href="/facts/Index_(economics)/cMnG0tgd">index</a>, or <a href="/facts/Interest_rate/Nb4JN7gR">interest rate</a>. They can be <a href="/facts/Derivative_(finance)/jx4CbakW">exchange-traded derivatives</a> and <a href="/facts/Derivative_(finance)/jx4CbakW">over-the-counter (OTC) derivatives</a>.<a class="footnote-ref" id="fnref:2" href="#fn:2"><sup>2</sup></a> Some of the more common derivatives include <a href="/facts/Forward_contract/A5FxeMtX">forwards</a>, <a href="/facts/Futures_contract/4SD3dKty">futures</a>, <a href="/facts/Option_(finance)/5gJFXV3X">options</a>, <a href="/facts/Swap_(finance)/koSzDf30">swaps</a>, and variations of these such as synthetic <a href="/facts/Collateralized_debt_obligation/TljvC7qr">collateralized debt obligations</a> and <a href="/facts/Credit_default_swap/PPsAwQhs">credit default swaps</a>.</li></ul> <table><tbody><tr><th rowspan="2">Asset class</th><th colspan="4">Instrument type</th></tr><tr><th>Securities</th><th>Other cash</th><th><a href="/facts/Derivative_(finance)/jx4CbakW">Exchange-traded derivatives</a></th><th><a href="/facts/Derivative_(finance)/jx4CbakW">OTC derivatives</a></th></tr><tr><th>Debt (long term) 1 year</th><td><a href="/facts/Bond_(finance)/qlmpLj0k">Bonds</a></td><td><a href="/facts/Loan/bPaAc9HT">Loans</a></td><td>Bond <a href="/facts/Futures_contract/4SD3dKty">futures</a> <a href="/facts/Option_(finance)/5gJFXV3X">Options</a> on bond <a href="/facts/Futures_contract/4SD3dKty">futures</a></td><td><a href="/facts/Interest_rate_swap/cJyud3Jn">Interest rate swaps</a><a href="/facts/Interest_rate_cap_and_floor/FoDszlmM">Interest rate caps and floors</a><a href="/facts/Interest_rate_option/tvj9wUm2">Interest rate options</a><a href="/facts/Exotic_derivative/keQJfpub">Exotic derivatives</a></td></tr><tr><th>Debt (short term) ≤ 1 year</th><td>Bills, e.g. <a href="/facts/Treasury_security/ggwu3txu">T-bills</a><a href="/facts/Commercial_paper/D8J8uRt6">Commercial paper</a></td><td><a href="/facts/Deposit_account/qewqdqy2">Deposits</a><a href="/facts/Certificate_of_deposit/T0sP8odf">Certificates of deposit</a></td><td>Short-term <a href="/facts/Interest_rate_future/EcXVGW54">interest rate futures</a></td><td><a href="/facts/Forward_rate_agreement/HUqVT0K9">Forward rate agreements</a></td></tr><tr><th><a href="/facts/Equity_(finance)/K5fBPIfS">Equity</a></th><td><a href="/facts/Stock/Qa912YwX">Stock</a></td><td>N/A</td><td>Stock <a href="/facts/Option_(finance)/5gJFXV3X">options</a>Equity <a href="/facts/Futures_contract/4SD3dKty">futures</a></td><td>Stock <a href="/facts/Option_(finance)/5gJFXV3X">options</a><a href="/facts/Exotic_derivative/keQJfpub">Exotic derivatives</a></td></tr><tr><th><a href="/facts/Currency/g5GPGfTe">Foreign exchange</a></th><td>N/A</td><td><a href="/facts/Foreign_exchange_spot/ghvmEzL1">Spot</a> foreign exchange</td><td><a href="/facts/Currency_future/ayY36Ruy">Currency futures</a></td><td>Foreign exchange <a href="/facts/Option_(finance)/5gJFXV3X">options</a><a href="/facts/Forward_contract/A5FxeMtX">Outright forwards</a><a href="/facts/Foreign_exchange_swap/jaj0d1QN">Foreign exchange swaps</a><a href="/facts/Currency_swap/fPa4X43m">Currency swaps</a></td></tr></tbody></table> <p>Some instruments defy categorization into the above matrix, for example <a href="/facts/Repurchase_agreement/8NB4HH16">repurchase agreements</a>. </p> <h2 id="measuring-gain-or-loss">Measuring gain or loss</h2> <p>The gain or loss on a financial instrument is as follows: </p> <table><tbody><tr><th>Instrument Type</th><th>Categories</th><th>Measurement</th><th>Gains and losses</th></tr><tr><th>Assets</th><td>Loans and receivables</td><td>Amortized costs</td><td>Net income when asset is derecognized or impaired (foreign exchange and impairment recognized in net income immediately)</td></tr><tr><th>Assets</th><td>Available for sale financial assets</td><td><a href="/facts/Deposit_account/qewqdqy2">Deposit account</a> – <a href="/facts/Fair_value/44YMC9Ls">fair value</a></td><td>Other comprehensive income (impairment recognized in net income immediately)</td></tr></tbody></table> <h2 id="see-also">See also</h2> <ul><li><a href="/facts/Off-balance-sheet/NrWXhaHd">Off-balance-sheet</a> issues</li> <li><a href="/facts/IFRS_9/xB9uyRQl">IFRS 9</a> – Accounting standard titled "Financial Instruments"</li> <li><a href="/facts/IFRS_7/Xo0dSlm7">IFRS 7</a> – Accounting standard titled "Financial Instruments: Disclosures"</li></ul> <h2 id="external-links">External links</h2> <ul><li><a href="https://web.archive.org/web/20071018051829/http://www.ifrslist.com/">IFRS List – The online community about IFRS/IAS and Auditing</a></li> <li><a href="https://www.chicagofed.org/publications/understanding-derivatives/index">Understanding Derivatives: Markets and Infrastructure</a> Federal Reserve Bank of Chicago, Financial Markets Group</li> <li><a href="https://medium.com/@digitalmindnourishment/why-the-stock-market-is-better-than-having-your-money-in-the-bank-72eea6d21bfb">Why the Stock Market is better than having your money in the bank…</a></li></ul> <h2 id="references">References</h2> <ol> <li id="fn:1"><p>International Accounting Standard (IAS) 32.11 <a href="#fnref:1" class="footnote-back-ref">↩</a></p></li> <li id="fn:2"><p>Understanding Derivatives Archived 2013-08-12 at the Wayback Machine. Federal Reserve Bank of Chicago. Accessed August 2, 2015. <a href="http://chicagofed.org/webpages/publications/understanding_derivatives/index.cfm" target="_blank">http://chicagofed.org/webpages/publications/understanding_derivatives/index.cfm</a> <a href="#fnref:2" class="footnote-back-ref">↩</a></p></li> </ol>