FINANCIAL INSTRUMENTSFINANCIAL INSTRUMENTS ARE LEGAL AGREEMENTS THAT REQUIRE ONE PARTY TO PAY MONEY OR SOMETHING ELSE OF VALUE OR TO PROMISE TO PAY UNDER STIPULATED CONDITIONS TO COUNTERPARTY IN EXCHANGE FOR THE PAYMENT OF INTEREST, FOR THE ACQUISITION OF RIGHTS, FOR PREMIUMS, OR FOR INDEMNIFICATION AGAINST RISK. IN EXCHANGE FOR THE PAYMENT OF THE MONEY, THE COUNTERPARTY HOPES TO PROFIT BY RECEIVING INTEREST, CAPITAL GAINS, PREMIUMS, OR INDEMNIFICATION FOR A LOSS EVENT.

FINANCIAL INSTRUMENTS

• A financial instrument can be an actual document, such as a stock certificate or a loan contract, but, increasingly, financial instruments that have been standardized are stored in an electronic book-entry system as a record, and the parties to the contract are also recorded. For instance, United States Treasuries are stored electronically in a book-entry system maintained by the Federal Reserve.

FINANCIAL INSTRUMENTS

• Some common financial instruments include checks, which transfer money from the payer, the writer of the check, to the payee, the receiver of the check. Stocks are issued by companies to raise money from investors. The investors pay for the stock, thereby giving money to the company, in exchange for an ownership interest in the company. Bonds are financial instruments that allow investors to lend money to the bond issuer for a stipulated amount of interest over a specified period.

FINANCIAL INSTRUMENTS

• Financial instruments can also be used by traders to either speculate about future prices, index levels, or interest rates, or some other financial measure, or to hedge financial risk. The 2 parties to these kinds of instruments are speculators and hedgers. Speculators attempt to predict future prices or some other financial measure, then buying or selling the financial instruments that would yield a profit if their view of the future should be correct. • financial-instrument.tradebanq.com