Scroll Top


    Financial Instrument


    A financial instrument is defined as a contract between individuals/parties that holds a monetary value. They can either be created, traded, settled, or modified as per the involved parties' requirement. In simple words, any asset which holds capital and can be traded in the market is referred to as a financial instrument.

    Some examples of financial instruments are cheques, shares, stocks, bonds, futures, and options contracts.

    Understanding Financial Instruments

    Financial instruments can be primarily classified into two types - derivative instruments and cash instruments.

    Derivative instruments can be defined as instruments whose characteristics and value can be derived from its underlying entities such as interest rates, indices or assets, among others. The value of such instruments can be obtained from the performance of the underlying component. Also, they can be linked to other securities such as bonds and shares/stocks.

    Cash instruments, on the other hand, are defined as instruments which can be transferred and valued readily in the market. Some of the most common examples of cash instruments are deposits and loans where the lenders and borrowers are required to be agreed upon.

    Other Classifications

    Financial instruments can also be classified based on the asset class, i.e. equity-based and debt-based financial instruments.

    Equity-based financial instruments include securities, such as stocks/shares. Also, exchange-traded derivatives, such as equity futures and stock options, fall under the same category.

    Debt-based financial instruments, on the other hand, consist of short-term securities, such as commercial paper (CP) and treasury bills (T-bills) which have a maturity period of one year or less.

    Cash instruments such as certificates of deposits (CDs) also fall under this category. On the same lines, exchange-traded derivatives, such as short-term interest rate futures fall under this category.

    Since the maturity period on long-term debt-based financial instruments exceeds a year, securities such as bonds fall under the category. Exchange-traded derivates include bond futures, and options are the other examples.

    Popular Topics

    Latest Articles

    Clear offers taxation & financial solutions to individuals, businesses, organizations & chartered accountants in India. Clear serves 1.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India.

    Efiling Income Tax Returns(ITR) is made easy with Clear platform. Just upload your form 16, claim your deductions and get your acknowledgment number online. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing.

    CAs, experts and businesses can get GST ready with Clear GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax. Clear can also help you in getting your business registered for Goods & Services Tax Law.

    Save taxes with Clear by investing in tax saving mutual funds (ELSS) online. Our experts suggest the best funds and you can get high returns by investing directly or through SIP. Download Black by ClearTax App to file returns from your mobile phone.

    Cleartax is a product by Defmacro Software Pvt. Ltd.

    Company PolicyTerms of use


    ISO 27001

    Data Center


    SSL Certified Site

    128-bit encryption