Characteristics of Financial Instruments

Financial instruments are capital arrangements that have been classified into various types depending on their attributed characteristics and structure and are easily tradable in financial markets. They are advantageous in that they allow efficient flow of capital without carrying along the actual amount of cash in the financial markets.

These financial instruments will include the Demand Deposits which are amounts deposited by a person in a bank on legal agreement to withdraw upon demand without requiring any notice to be given in advance, Corporate Bonds which are monies borrowed by large corporations which are not government owned (there is an agreement between the borrower and the corporations that the money must be repaid upon the expiration of the maturity period).

Also there is Treasury Bills which are debt instruments that mature within one year and are issued by the government, Federal Funds which are funds that commercial banks deposit with the central bank (Federal Reserve) which are used for daily operations of the banks, Commercial Papers and abbreviated as (CP) are unsecured short term debts issued by companies to meet short-term financial obligations.

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Municipal Bonds are long-term debts issued by the local government, Lotto Tickets which are drawn lot prize claims which are a form of gambling, Commercial Loans which are loans advanced by banks to individuals or corporations for business purposes and there is Stock which is defined as the portion of the shareholding in a company, that is, the claim that an investor has on company’s assets (www.

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