Consider the following:Exchange-Traded Funds (ETF)Motor vehiclesCurrency swapWhich of the above is/a

Question

Consider the following:Exchange-Traded Funds (ETF)Motor vehiclesCurrency swapWhich of the above is/are considered financial instruments?

Accepted Answer

A financial instrument is a real or virtual document representing a legal agreement involving any kind of monetary value. Financial instruments may also be divided according to an asset class, which depends on whether they are debt-based or equity-based. Foreign exchange instruments comprise a third, unique type of financial instrument.Debt-based instruments are essentially loans made by an investor to the owner of the asset. Short-term debt-based financial instruments last for one year or less. Securities of this kind come in the form of Treasury bills (T-bills) and commercial paper.Equity-based instruments represent ownership of an asset. Securities that trade under the banner of equity-based financial instruments are most often stocks, which can be either common stock or preferred shares. Exchange Traded Funds (ETFs) and mutual funds may also be equity-based instruments.Foreign exchange (forex, or FX) instruments include derivatives such as forwards, futures, and options on currency pairs, as well as contracts for difference (CFDs). Currency swaps are another common form of forex instrument.Motor vehicles are tangible physical assets. They can be owned, bought, and sold, but they do not represent a financial claim or contractual agreement in the way that financial instruments do. While motor vehicles can be financed through loans or leases (which are financial instruments), the vehicles themselves are not classified as such. Hence option (d) is the correct answer.