What Are the Different Types of Financial Instruments?

The financial instrument system, also known as a credit instrument, is a type of legal proof of creditor's rights, debts, or ownership relationships that is used for financing. The financial instrument system can be divided into three categories: short-term credit instruments such as bills, letters of credit, and credit cards; long-term credit instruments such as stocks and bonds; and irregular credit instruments such as banknotes.

Financial instrument system

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Financial instrument system
1) According to different classification standards, there are various types of financial instruments. See the table below.
Types of financial instruments
According to different periods
Derivative financial instruments (futures contracts, options contracts, swap contracts)
(2) Various types of financial instruments have the common characteristics of maturity, liquidity, risk and return. Maturity refers to the time that a debtor stipulated by a general financial instrument can take from borrowing to full repayment of principal and interest. Liquidity refers to the ability of a financial instrument to quickly turn into cash without suffering losses when necessary. Generally speaking, the liquidity of financial instruments is inversely proportional to the repayment period. The level of profitability of financial instruments and the creditworthiness of the issuer are also important factors determining the size of liquidity. Riskiness refers to the possibility of loss of the principal and the predetermined return on the purchase of financial instruments. There are two aspects of credit risk and market risk. Profitability refers to the characteristics of financial instruments that can add value. Comparison of the size of returns To analyze the factors such as bank deposit interest rates, inflation rates, and other financial instrument returns, we must also examine the size of the risk. (3) All financial instruments generally have the above-mentioned four characteristics, but the extent to which the different financial instruments perform in the above-mentioned four aspects is different, and this difference is considered by purchasers of financial instruments main content. Different types of financial instruments reflect different combinations of various characteristics, so they can meet the different needs of investors and fundraisers, respectively.

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