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.

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BREAKING DOWN '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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RELATED FAQS
  1. Is reclassification of a financial instrument ever permitted?

    Financial instruments are sometimes reclassified for regulatory or accounting purposes. In the United States, the classification ... Read Full Answer >>
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    The two main kinds of acts excluded from regulation as "financial instruments business," which pertain to interests in collective ... Read Full Answer >>
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    Insurance policies are widely considered to be financial instruments. Pension funds may contain many different types of financial ... Read Full Answer >>
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    A person in the financial instruments business, as defined by the Financial Instruments and Exchange Law, is allowed to engage ... Read Full Answer >>
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    The Chinese stock market has no history of short sales. However, in 2007, the Chinese government, in an effort to increase ... Read Full Answer >>
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