Financial Instruments

Financial Instruments

Financial Instruments

It is a legal agreement which involves some monetary value. Financial instruments can be classified as a source of equity which involves ownership of assets or representing a loan i.e. debt based. Some examples of financial instruments are common stock, preferred shares, government bonds etc.

Common Stock

It is a security which has an ownership is a company or corporation. Common stock holders exercise control through the board of directors. This board of directors is elected by the stockholders through voting. These stockholders are the least priority owners in the structure ladder of ownership. If a company is liquidates, the common stock holders are given rights after the bondholders. Another type of shareholders is preferred share holders and debt shareholders whose rights are paid in full. The common stockholder receives their part of shared after the money from the liquidated assets is received by creditors and preferred shareholders.

Acquisition of Common Stock Share

These shares are traded in open stock market and can be acquired through these stock markets.

Preferred Shareholders

Preferred shareholders are those stockholders who are given preference in rights when the company is declared bankrupt and their assets are liquidated. A preferred shareholder has no voting rights. Another thing which distinguishes preferred shares from common stock is that the dividend on preferred shares is fixed.

Acquisition of Preferred Share

Usually acquisition of preferred shares is not easy. These shares are given as an option of investment to those people who help in the incorporation of a company. These are special type of shares.

Government Bonds

Bonds referred to those governments saving bond that has a fixed interest rate over a period of time. These bonds are attractive to people because these bonds do not have any local or state taxes. These bonds are non-negotiable and are not easily transferable. These are risk ...