Financial Instrument Introduction

Question 1

What are the basic types or categories of financial instruments?

Answer 1

1.)Cash
2.)Evidence of an ownership interest in an entity
3.)Contracts that result in an exchange of cash or ownership interest in an entity that:
Imposes on one entity a contractual obligation (liability); and
Conveys to a second entity a contractual right (asset).

Question 2

Identify at least five financial liabilities

Answer 2

1. )Accounts payable
2. )Notes and bonds payable
3. )Option contracts (with unfavorable terms)
4. )Futures and forward contracts (with unfavorable terms)
5. )Swap contracts (with unfavorable terms

Question 3

Identify at least five financial assets

Answer 3

1. )Cash and cash equivalents
2. )Accounts receivable
3. )Investments in debt or equity securities
4. )Ownership interest in a partnership, joint venture, or other entity
5. )Option contracts (with favorable terms)
6. )Futures and forward contracts (with favorable terms)
7. )Swap contracts (with favorable terms)

Question 4

Is inventory a financial instrument?

Answer 4

No

Question 5

Can derivative instruments be used to speculate?

Answer 5

Yes