Financial Instrument

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DEFINITION of 'Financial Instrument'

A real or virtual document representing a legal agreement involving some sort of monetary value. In today's financial marketplace, financial instruments can be classified generally as equity based, representing ownership of the asset, or debt based, representing a loan made by an investor to the owner of the asset. Foreign exchange instruments comprise a third, unique type of instrument. Different subcategories of each instrument type exist, such as preferred share equity and common share equity, for example.

INVESTOPEDIA EXPLAINS 'Financial Instrument'

Financial instruments can be thought of as easily tradeable packages of capital, each having their own unique characteristics and structure. The wide array of financial instruments in today's marketplace allows for the efficient flow of capital amongst the world's investors.

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