Financial instrument

Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. They can be cash (currency), evidence of an ownership interest in an entity (share), or a contractual right to receive or deliver cash (bond).

International Accounting Standards IAS 32 and 39 define a financial instrument as "any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity".

Financial instruments can be either cash instruments or derivative instruments:

Alternatively, financial instruments may 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 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.

Some instruments defy categorization into the above matrix, for example repurchase agreements.

The gain or loss on a financial instrument is as follows:

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