FINANCIAL INSTRUMENT

Financial Instrument

Financial Instrument

Introduction to Financial Markets

The financial market is fund raising, provision of credit, the implementation of the exchange of transactions and placement of funds in production. A set of supply and demand for capital lenders and borrowers of different forms of global financial markets. Debt markets are those markets where traded financial assets or instruments granting a right to future cash flows of the issuer to the investor that is individualized by the payment of obligations (Elton, 2003).

Financial markets consist of three key markets, debt markets (which in turn include the interbank markets, foreign exchange, monetary and other fixed income), equity markets and derivatives markets. The securities traded in the derivatives markets is "derived", or commodities or fixed income securities, equities or indexes comprised of some of these securities or commodities. Therefore, the derivatives markets can be separated into two segments, "Financial derivatives markets" and "Financial Derivatives Markets." Both are traded defined two types of securities, futures contracts and options contracts. In this course we want to analyze and study the benefits derived products, with the aim of highlighting how proper use of them can not only help us meet our goals of profitability, but also clearly reduce the risk positions. Additionally we want the students know and use the applications on the financial market and in real life are used to give the greatest possible real rigor (Marc, 2009, 34-45).

Financial Instruments

Financial instruments can be classified according to form, depending on whether they are cash instruments or derivative financial instruments:

Cash instruments are financial instruments whose value is determined directly by markets. Can be divided into securities, which are readily marketable or other commercial documents, such as loans and deposits, as the borrower and the lender must consent to the transfer

Derivative financial instruments that derive their value from the value and characteristics of one or more underlying assets. Can be divided into exchange-traded derivatives and derivatives (OTC) market in the street. Moreover, financial instruments can be categorized by "asset class" depending on whether they are based enterprises' own funds or debt based. If it is debt can be classified into short term (less than a year) or long term. Most of these instruments are both investment and financing, is investment for the purchaser and seller financing.

Junk bonds

"Junk bonds" are bonds of lower credit quality. In other words, it refers to products with a high risk compared with the rest of the bonds either by their exposure to the suspension of payments or other events related to his "dangerous volatile."

In return for this increased risk, offer a higher interest rate, and occasionally too tempting because it is usually well above the market average, which has led to more than one failure, and a few in a universe of million, to glory.

The level of risk of these bonds trash is rated by rating agency or rating, which are responsible for raising or lowering the note. this type of bond usually have the worst grades ...