[Oimie]

Can anyone give me a clear definition of what a financial instrument is? Like what is it suppose to do or what properties do they have? I’m studying and all I am getting are a lot of examples as to what a financial instrument is but I still can’t piece together the bigger picture. I looked through multiple sources and cash is a financial instrument, but how come I do not see accounts receivable? I didn’t see any sources mention PPE as well. I need to see the bigger picture. Any help please? Thanks!

FAR 85 June 2015
AUD 80 Nov 2015
REG 83 Nov 2015
BEC 79 Feb 2016

[taxgeek83]

I've always understood a financial instrument to be something you would use to pay for a good or service. Cash fits into that definition well.

While theoretically you could pay for a good or service by trading an A/R or business asset, that sort of transaction is more likely the exception rather than the rule.

https://www.investopedia.com/terms/f/financialinstrument.asp

Goes beyond my limited definition, but gives a more over-arching description of the concept.

[thelawnwranglers]

I always think of hedging items / derivatives. I think it is any cash, stock, bond, call, put, forward contract, futures contract, and etc.

basically I think it is something written to achieve a financial purpose- like right to buy or sell currency, stock, bonds, etc

[ibCPAsoon]

The adding machine is my financial instrument. Have that thing pumping out some nice jingles until april 15.

BEC - PASS JULY 2014
FAR - PASS DEC 2014
AUD - PASS FEB 2015
REG - PASS MAY 2015

[Oimie]

Thanks for the replies guys but I still am not clear on it. If someone asks me why something is or is not considered a current asset, I can give a clear reason why. But if someone asks me why or why isn't something classified as a financial instrument, I have no idea.

FAR 85 June 2015
AUD 80 Nov 2015
REG 83 Nov 2015
BEC 79 Feb 2016

[howmany74s]

Oimie, you are looking for a big definition here. Financial instruments can be either assets or liabilities, and can be classified as current or non current assets/liabilities. Anything that creates a future claim or obligation can be defined as a financial instrument, except ‘cash' and fixed assets.

One easy way to determine a financial instrument is to ask “how the current value of the asset/liability is determined”? If the determination is based upon a market value, then you are most likely staring at a financial instrument.

Financial instruments are mostly found in inventory of a financial institution and includes available for sale securities (bonds), trading securities, derivatives (OTC derivatives, swaptions etc.) or they can be funky creations of a genius and can be linked to a future cash flow of another instrument.

They basically let the company either claim cash/asset in the future or pay cash/liability.

[Oimie]

@howmany74s: Thank you!

FAR 85 June 2015
AUD 80 Nov 2015
REG 83 Nov 2015
BEC 79 Feb 2016

[Author]

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