Financial instrument

A financial instrument is an investment that confers on its owner a claim on the income or change in value of the issuer, or some underlying component of the instrument. Several examples of financial instruments are as follows:

  • Bonds represent a loan by the investor to the issuer, in exchange for a series of interest payments.

  • Shares represent an ownership interest in the issuer.

  • Derivative valuations are based on their underlying components, such as changes in a stock index.

Financial instruments can usually be traded, thereby allowing for the efficient transfer of capital between investors.

Related Courses

Corporate Finance 
Treasurer's Guidebook