A financial instrument is a contract between two parties. Financial instrument can be created, traded and get modify as well. A financial instrument is a kind of evidence or ownership between two parties. A financial instrument gives rise to financial asset to one party and financial liability to other party. • Financial instrument can be divided in two types. it can also be divided according to assets classes, which further tells either they are equity based or debt based. Short term financial instrument is for 1 year or less and long term financial instrument last for more than a year. Financial instruments are of two types • Cash instrument: Cash instrument are the instrument that market value directly. • Derivative instrument: Derivative instrument are instrument whose worth we drive directly from assets.
Financial instrument provides economy future benefits in the form of a future cash claim. Financial instruments are exchanged or traded in financial market. Financial market provides • Price discovery • Liquidity • Reduction of cost • Financial instrument are assets that can be traded in the market as well. They can also be traded as a package of one’s ownership or entity to other. Financial instrument provides support for investment through loans, guarantees. They are used to perform investment in structural funds. • Financial instrument is a kind of support for both the parties. • It also provide a stable framework for implementation for guarantees
The role of financial instrument in enhancing the growth and economy is very much required. But it is also a debatable issue to be concerned. • Financial instrument is very much required for the growth of the economy. It is very helpful for the health and efficiency of the economy. • There is a strong connection between Financial instrument and economy development and growth.